Securities and Exchange Commission

Washington, D.C. 20549

Form 10-K

(Mark One)

þ		Annual Report Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Fiscal Year Ended February 3, 2007

o		Transition Report Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934

Genesco Inc.

A Tennessee Corporation

I.R.S. No. 62-0211340
Genesco Park
1415 Murfreesboro Road
Nashville, Tennessee 37217-2895
Telephone 615/367-7000

Title		Exchanges on which Registered
Common Stock, $1.00 par value		New York and Chicago
Preferred Share Purchase Rights		New York and Chicago

Securities Registered Pursuant to Section 12(g) of the Act
Subordinated Serial Preferred Stock, Series 1
Employees’ Subordinated Convertible Preferred Stock

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act (check one:)

Large accelerated filer þ          Accelerated filer o          Non-accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act.) Yes o No þ

Portion of Genesco’s Annual Report to Shareholders for the fiscal year ended February 3, 2007 are incorporated into Part II by reference. Portions of the proxy statement for the June 27, 2007 annual meeting of shareholders are incorporated into Part III by reference.

Common Shares Outstanding March 23, 2007 – 22,748,770 The aggregate market value of common stock held by nonaffiliates of the registrant as of July 29, 2006, the last business day of the registrant’s most recently completed second fiscal quarter, was approximately $600,000,000. The market value calculation was determined using a per share price of $26.25, the price at which the common stock was last sold on the New York Stock Exchange on such date. For purposes of this calculation, shares held by nonaffiliates excludes only those shares beneficially owned by officers, directors, and shareholders owning 10% or more of the outstanding common stock (and, in each case, their immediate family members and affiliates).

 

 

TABLE OF CONTENTS

		Page
PART I
Item 1. Business			3
Item 1A. Risk Factors			8
Item 1B. Unresolved Staff Comments			14
Item 2. Properties			14
Item 3. Legal Proceedings			14
Item 4. Submission of Matters to a Vote of Security Holders			17
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities			20
Item 6. Selected Financial Data			22
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations			23
Item 7A. Quantitative and Qualitative Disclosures about Market Risk			45
Item 8. Financial Statements and Supplementary Data			46
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure			109
Item 9A. Controls and Procedures			109
Item 9B. Other Information			109
PART III
Item 10. Directors, Executive Officers and Corporate Governance of the Registrant			109
Item 11. Executive Compensation			110
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters			111
Item 13. Certain Relationships and Related Transactions, and Director Independence			111
Item 14. Principal Accountant Fees and Services			111
PART IV
Item 15. Exhibits and Financial Statement Schedules			112
Ex-21 Subsidiaries of the Company
Ex-24 Power of Attorney
Ex-31.1 Section 302 Certification of the CEO
Ex-31.2 Section 302 Certification of the CFO
Ex-32.1 Section 906 Certification of the CEO
Ex-32.2 Section 302 Certification of the CFO
Ex-99 Financial Statements and Report of Independent Registered Public Accounting Firm

PART I

ITEM 1, BUSINESS

General

Genesco is a leading retailer of branded footwear and licensed and branded headwear and a wholesaler of branded footwear, with net sales for Fiscal 2007 of $1.5 billion. During Fiscal 2007, the Company operated five reportable business segments (not including corporate): Journeys Group, comprised of the Journeys, Journeys Kidz and Shi by Journeys retail footwear chains, catalog and e-commerce operations; Underground Station Group, comprised of the Underground Station and Jarman retail footwear chains and e-commerce operations; Hat World Group, comprised of the Hat World, Lids, Hat Shack, Hat Zone, Head Quarters, Cap Connection and Lids Kids retail headwear chains and e-commerce operations; Johnston & Murphy Group, comprised of Johnston & Murphy retail operations, catalog and e-commerce operations and wholesale distribution; and Licensed Brands, comprised primarily of Dockers ^® footwear, sourced and marketed under a license from Levi Strauss & Company. On April 1, 2004, the Company acquired Hat World Corporation, a leading retailer of licensed and branded headwear. On July 1, 2004, the Company acquired Cap Connection Ltd., a retailer of licensed and branded headwear in Canada. On January 11, 2007, the Company acquired Hat Shack, Inc., a retailer of licensed and branded headwear.

At February 3, 2007, the Company operated 2,009 retail footwear and headwear stores throughout the United States and Puerto Rico including 26 headwear stores in Canada. It currently plans to open a total of 251 to 261 new retail stores in Fiscal 2008. At February 3, 2007, Journeys Group operated 853 stores, including 73 Journeys Kidz and 12 Shi by Journeys; Underground Station Group operated 223 stores, including 193 Underground Station stores; Hat World Group operated 785 stores, including 26 Canadian stores, 49 Hat Shack stores and three Lids Kids stores, and Johnston & Murphy Group operated 148 retail shops and factory stores.

The following table sets forth certain additional information concerning the Company’s retail footwear and headwear stores during the five most recent fiscal years:

		Fiscal				Fiscal				Fiscal				Fiscal				Fiscal
		2003				2004				2005				2006				2007
Retail Footwear and Headwear Stores and Leased Departments
Beginning of year			908				991				1,046				1,618				1,773
Opened during year			97				80				120				193				224
Acquired during year			-0-				-0-				503				-0-				49
Closed during year			(14	)			(25	)			(51	)			(38	)			(37	)
End of year			991				1,046				1,618				1,773				2,009

The Company also designs, sources, markets and distributes footwear under its own Johnston & Murphy brand and under the licensed Dockers^® brand to over 1,000 retail accounts in the United States, including a number of leading department, discount, and specialty stores.

Shorthand references to fiscal years (e.g., “Fiscal 2007”) refer to the fiscal year ended on the Saturday nearest January 31^st in the named year (e.g., February 3, 2007). All information

contained in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” which is referred to in Item 1 of this report is incorporated by such reference in Item 1. This report contains forward-looking statements. Actual results may vary materially and adversely from the expectations reflected in these statements. For a discussion of some of the factors that may lead to different results, see Item 1A, “Risk Factors” and Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Available Information

The Company files reports with the Securities and Exchange Commission (“SEC”), including annual reports on Form 10-K, quarterly reports on Form 10-Q and other reports from time to time. The public may read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F. Street, NE, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The Company is an electronic filer and the SEC maintains an Internet site at http://www.sec.gov that contains the reports, proxy and information statements, and other information filed electronically. Our website address is http://www.genesco.com. Please note that our website address is provided as an inactive textual reference only. We make available free of charge through our website annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC. The information provided on our website is not part of this report, and is therefore not incorporated by reference unless such information is otherwise specifically referenced elsewhere in this report.

Segments

Journeys Group

The Journeys Group segment, including Journeys, Journeys Kidz and Shi by Journeys retail stores, catalog and e-commerce operations, accounted for approximately 48% of the Company’s net sales in Fiscal 2007. Operating income attributable to Journeys was $83.8 million in Fiscal 2007, with an operating margin of 12.0%. The Company believes that its innovative store formats, mix of well-known brands, new product introductions, and experienced management team provide significant competitive advantages for Journeys Group.

At February 3, 2007, Journeys Group operated 853 stores, including 73 Journeys Kidz stores and 12 Shi by Journeys stores, averaging approximately 1,775 square feet, throughout the United States and Puerto Rico, selling footwear for young men and women and children.

Journeys Group added 92 net new stores in Fiscal 2007 including 23 net new Journeys Kidz stores and 11 new Shi by Journeys stores and comparable store sales were up 6% from the prior fiscal year. Journeys stores target customers in the 13-22 year age group through the use of youth-oriented decor and popular music videos. Journeys stores carry predominately branded merchandise across a wide range of prices, including leading brand names such as Vans, Converse, Puma, Etnies and adidas. The Journeys Kidz retail footwear stores sell footwear primarily for younger children ages five to 12. Shi by Journeys retail footwear stores sell footwear and accessories targeting fashionable women in their early 20’s to mid 30’s. From a base of 665 Journeys Group stores at the end of Fiscal 2004, the Company opened 30 net new Journeys Group stores in Fiscal 2005, 66 net new stores in Fiscal 2006 and 92 net new stores in Fiscal 2007 and plans to open 125 to 135 net new Journeys Group stores in Fiscal 2008.

Underground Station Group

The Underground Station Group segment, including Underground Station and Jarman retail stores, accounted for approximately 11% of the Company’s net sales in Fiscal 2007. Operating income attributable to Underground Station Group was $3.8 million in Fiscal 2007, with an operating margin of 2.5%.

At February 3, 2007, Underground Station Group operated 223 stores, including 193 Underground Station stores, averaging approximately 1,725 square feet, throughout the United States, selling footwear and accessories primarily for men and women.

Underground Station stores are located primarily in urban markets. Jarman stores are located primarily in urban and suburban areas in the Southeast and Midwest. For Fiscal 2007, most of the footwear sold in Underground Station stores was branded merchandise, including leading brand names such as Timberland, Puma, Phat Farm, Diesel and adidas, with the remainder made up of private label brands. The product mix at each Underground Station/Jarman store is tailored to match local customer preferences and competitive dynamics. The Company opened 13 net new Underground Station stores in Fiscal 2007 and closed 19 Jarman stores, leaving the total number of Underground Station/Jarman stores at 223. The 13 net new Underground Station stores included three conversions of Jarman stores to Underground Station stores. The Company plans to open up to eight net new Underground Station stores in Fiscal 2008 and close approximately seven Jarman stores. The Company has previously announced its intentions eventually to close the remaining Jarman stores or to convert them into Underground Station stores. For additional information, including with respect to the planned closing or conversion of the Company’s Jarman stores, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 3 to the Consolidated Financial Statements, included in Item 8.

Hat World Group

The Hat World Group segment, including Hat World, Lids, Hat Shack, Hat Zone, Head Quarters, Cap Connection and Lids Kids retail stores and internet sales, accounted for approximately 23% of the Company’s net sales in Fiscal 2007. Operating income attributable to Hat World was $41.4 million in Fiscal 2007, with an operating margin of 12.1%.

At February 3, 2007, Hat World Group operated 785 stores, averaging approximately 750 square feet, throughout the United States, Puerto Rico and Canada. Hat World Group added 144 net new stores in Fiscal 2007, which includes 49 Hat Shack stores acquired in January 2007, and plans to open approximately 99 net new stores in Fiscal 2008.

The core adult stores, located in malls, airports, street level stores and factory outlet stores nationwide and in Canada, target customers in the early-teens to mid-20’s age group. The new Lids Kids stores, three of which were open at the end of Fiscal 2007, are located in malls and target toddlers to ten year olds. In general, the stores offer headwear from an assortment of college, MLB, NBA, NFL and NHL teams, as well as other specialty fashion categories.

Johnston & Murphy Group

The Johnston & Murphy Group segment, including retail stores, catalog and internet sales and wholesale distribution, accounted for approximately 13% of the Company’s net sales in Fiscal 2007. Operating income attributable to Johnston & Murphy was $15.3 million in Fiscal 2007, with an operating margin of 8.2%. All of the Johnston & Murphy wholesale sales are of the Genesco-owned Johnston & Murphy brand and approximately 96% of the group’s retail sales are of Johnston & Murphy branded products.

Johnston & Murphy Retail Operations. At February 3, 2007, Johnston & Murphy operated 148 retail shops and factory stores throughout the United States averaging approximately 1,625 square feet and selling footwear and accessories for men. Johnston & Murphy retail shops are located primarily in better malls nationwide and sell a broad range of men’s dress and casual footwear and accessories. The Company also sells Johnston & Murphy products directly to consumers through a direct mail catalog and an e-commerce website. Johnston & Murphy stores target male business and professional consumers. Retail prices for Johnston & Murphy footwear generally range from $100 to $300. Casual and dress casual footwear accounted for 38% of total Johnston & Murphy retail sales in Fiscal 2007, with the balance consisting of dress shoes and accessories.

Johnston & Murphy Wholesale Operations. In addition to sales through Company-owned Johnston & Murphy retail shops and factory stores, Johnston & Murphy footwear is sold at wholesale, primarily to better department and independent specialty stores. Johnston & Murphy’s wholesale customers offer the brand’s footwear for dress, dress casual, and casual occasions, with the majority of styles offered in these channels selling from $100-$200.

Licensed Brands

The Licensed Brands segment accounted for approximately 5% of the Company’s net sales in Fiscal 2007. Operating income attributable to Licensed Brands was $6.8 million in Fiscal 2007, with an operating margin of 8.6%. Substantially all of the Licensed Brands sales are of footwear marketed under the Dockers brand, for which Genesco has had the exclusive men’s footwear license in the United States since 1991. See “Trademarks and Licenses.” Dockers footwear is marketed through many of the same national retail chains that carry Dockers slacks and sportswear. Suggested retail prices for Dockers footwear generally range from $50 to $80.

For further information on the Company’s business segments, see Note 14 to the Consolidated Financial Statements included in Item 8 and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Manufacturing and Sourcing

The Company relies on independent third-party manufacturers for production of its footwear products sold at wholesale. The Company sources footwear and accessory products from foreign manufacturers located in China, Italy, Mexico, Brazil, Indonesia, Taiwan, India and Portugal. The Company’s retail operations source primarily branded products from third parties, who source primarily overseas.

Competition

Competition is intense in the footwear and headwear industry. The Company’s retail footwear and headwear competitors range from small, locally owned stores to regional and national department stores, discount stores, and specialty chains. The Company also competes with hundreds of footwear wholesale operations in the United States and throughout the world, most of which are relatively small, specialized operations, but some of which are large, more diversified companies. Some of the Company’s competitors have resources that are not available to the Company. The Company’s success depends upon its ability to remain competitive with respect to the key factors of style, price, quality, comfort, brand loyalty, customer service, store location and atmosphere and the ability to offer distinctive products.

Trademarks and Licenses

The Company owns its Johnston & Murphy brand through a wholly-owned subsidiary. The Dockers brand footwear line, introduced in Fiscal 1993, is sold under a license agreement granting the exclusive right to sell men’s footwear under the trademark in the United States, Canada and Mexico. The Dockers license agreement, as amended, expires on December 31, 2009, with an option to renew through December 31, 2012. Net sales of Dockers products were $77 million in Fiscal 2007 and $58 million in Fiscal 2006. The Company licenses certain of its footwear brands, mostly in foreign markets. License royalty income was not material in Fiscal 2007.

Wholesale Backlog

Most of the Company’s orders in the Company’s wholesale divisions are for delivery within 150 days. Because most of the Company’s business is at-once, the backlog at any one time is not necessarily indicative of future sales. As of March 3, 2007, the Company’s wholesale operations had a backlog of orders, including unconfirmed customer purchase orders, amounting to approximately $31.4 million, compared to approximately $20.3 million on February 25, 2006. The backlog is somewhat seasonal, reaching a peak in spring. The Company maintains in-stock programs for selected product lines with anticipated high volume sales.

Employees

Genesco had approximately 12,750 employees at February 3, 2007, approximately 120 of whom were employed in corporate staff departments and the balance in operations. Retail footwear and headwear stores employ a substantial number of part-time employees and approximately 7,150 of the Company’s employees were part-time.

Properties

At February 3, 2007, the Company operated 2,009 retail footwear and headwear stores throughout the United States, Puerto Rico and Canada. New shopping center store leases typically are for a term of approximately 10 years and new factory outlet leases typically are for a term of approximately five years. Both typically provide for rent based on a percentage of sales against a fixed minimum rent based on the square footage leased.

The Company operates four distribution centers (three of which are owned and one of which is leased) aggregating approximately 800,000 square feet. Three of the facilities are located in Tennessee and one in Indiana. The Company’s executive offices and the offices of its footwear operations, which are leased, are in Nashville, Tennessee where Genesco occupies approximately 77% of a 295,000 square foot building. The offices of the Company’s headwear operations, which are leased, are in a 43,000 square foot building in Indianapolis, Indiana.

The lease on the Company’s Nashville office expires in April 2017, with an option to renew for an additional five years. The lease on the Indianapolis office expires in May 2015 and the lease on the Edmonton office expires in June 2007. The Company believes that all leases of properties that are material to its operations may be renewed on terms not materially less favorable to the Company than existing leases.

Environmental Matters

The Company’s former manufacturing operations and the sites of those operations are subject to numerous federal, state, and local laws and regulations relating to human health and safety and the environment. These laws and regulations address and regulate, among other matters, wastewater discharge, air quality and the generation, handling, storage, treatment, disposal, and transportation of solid and hazardous wastes and releases of hazardous substances into the environment. In addition, third parties and governmental agencies in some cases have the power under such laws and regulations to require remediation of environmental conditions and, in the case of governmental agencies, to impose fines and penalties. Several of the facilities owned by the Company (currently or in the past) are located in industrial areas and have historically been used for extensive periods for industrial operations such as tanning, dyeing, and manufacturing. Some of these operations used materials and generated wastes that would be considered regulated substances under current environmental laws and regulations. The Company currently is involved in certain administrative and judicial environmental proceedings relating to the Company’s former facilities. See “Item 3, Legal Proceedings.”

ITEM 1A, RISK FACTORS

Our business is subject to significant risks. You should carefully consider the risks and uncertainties described below and the other information in this Form 10-K, including our consolidated financial statements and the notes to those statements. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties that we do not presently know about or that we currently consider immaterial may also affect our business operations and financial performance. If any of the events described below actually occur, our business, financial condition or results of operations could be adversely affected in a material way. This could cause the trading price of our stock to decline, perhaps significantly, and you may lose part or all of your investment.

Poor economic conditions affect consumer spending and may significantly harm our business.

The success of our business depends to a significant extent upon the level of consumer spending. A number of factors may affect the level of consumer spending on merchandise that we offer, including, among other things:

	•		general economic, industry and weather conditions;
	•		energy costs, which affect gasoline and home heating prices;
	•		the level of consumer debt;
	•		interest rates;
	•		tax rates and policies;
	•		war, terrorism and other hostilities; and
	•		consumer confidence in future economic conditions.

Adverse economic conditions and any related decrease in consumer demand for discretionary items could have a material adverse effect on our business, results of operations and financial condition. The merchandise we sell generally consists of discretionary items. Reduced consumer confidence and spending may result in reduced demand for discretionary items and may force us to take inventory markdowns. Reduced demand may also require increased selling and promotional expenses.

Our business involves a degree of fashion risk.

Certain of our businesses serve a fashion-conscious customer base and depend upon the ability of our buyers and merchandisers to react to fashion trends, to purchase inventory that reflects such trends, and to manage our inventories appropriately in view of the potential for sudden changes in fashion or in consumer taste. Our ability to achieve our performance goals for fiscal 2008 in particular depends in part on the success of our efforts to remerchandise and reposition our Underground Station business, which serves a particularly fashion-sensitive market segment. Failure to continue to execute any of these activities successfully could result in adverse consequences, including lower sales, product margins, operating income and cash flows.

Our business and results of operations are subject to a broad range of uncertainties arising out of world and domestic events.

Our business and results of operations are subject to uncertainties arising out of world and domestic events, which may impact not only consumer demand, but also our ability to obtain the products we sell, most of which are produced outside the United States. These uncertainties may include a global economy slowdown, changes in consumer spending or travel, the increase in gasoline and natural gas prices, and the economic consequences of military action or terrorist activities. Any future events arising as a result of terrorist activity or other world events may have a material impact on our business, including the demand for and our ability to source products, and consequently on our results of operations and financial condition. Demand can also be influenced by other factors beyond our control. For example, Hat World’s sales have historically been affected by developments in team sports, and could be adversely impacted by player strikes or other season interruptions, as well as by the performance and reputation of certain key teams.

Our business is intensely competitive and increased or new competition could have a material adverse effect on us.

The retail footwear, headwear and accessories markets are intensely competitive. We currently compete against a diverse group of retailers, including other regional and national specialty stores, department and discount stores, small independents and e-commerce retailers, which sell products similar to and often identical to those we sell. Our branded businesses, selling footwear at wholesale, also face intense competition, both from other branded wholesale vendors and from private label initiatives of their retailer customers. A number of different competitive factors could have a material adverse effect on our business, results of operations and financial condition, including:

	•		increased operational efficiencies of competitors;
	•		competitive pricing strategies;
	•		expansion by existing competitors;
	•		entry by new competitors into markets in which we currently operate; and
	•		adoption by existing retail competitors of innovative store formats or sales methods.

We are dependent on third-party vendors for the merchandise we sell.

We do not manufacture any of the merchandise we sell. This means that our product supply is subject to the ability and willingness of third-party suppliers to deliver merchandise we order on time and in the quantities and of the quality we need. In addition, a material portion of our retail footwear sales consist of products marketed under brands, belonging to unaffiliated vendors, which have fashion significance to our customers. Our core retail hat business is dependent upon products bearing sports and other logos, each generally controlled by a single licensee/vendor. If those vendors were to decide not to sell to us or to limit the availability of their products to us, we could be unable to offer our customers the products they wish to buy and could lose their business to competitors.

An increase in the cost or a disruption in the flow of our imported products may significantly decrease our sales and profits.

Merchandise originally manufactured and imported from overseas makes up a large proportion of our total inventory. A disruption in the shipping of our imported merchandise or an increase in the cost of those products may significantly decrease our sales and profits. In addition, if imported merchandise becomes more expensive or unavailable, the transition to alternative sources may not occur in time to meet demand. Products from alternative sources may also be of lesser quality or more expensive than those we currently import. Risks associated with our reliance on imported products include:

•

disruptions in the shipping and importation of imported products because of factors such as:

	•		raw material shortages, work stoppages, strikes and political unrest;
	•		problems with oceanic shipping, including shipping container shortages;
	•		increased customs inspections of import shipments or other factors causing delays in shipments;
	•		economic crises, international disputes and wars; and

•

increases in the cost of purchasing or shipping foreign merchandise resulting from:

	•		denial by the United States of “most favored nation” trading status to or the imposition of quotas or other restrictions on import from a foreign country from which we purchase goods;
	•		import duties, import quotas and other trade sanctions; and
	•		increases in shipping rates.

A significant amount of the inventory we sell is imported from the People’s Republic of China, which has in recent years been subject to efforts to increase duty rates or to impose restrictions on imports of certain products.

Some of the products we buy abroad are priced in foreign currencies and, therefore, we are affected by fluctuating exchange rates. In the past, we have entered into foreign currency exchange contracts with major financial institutions to hedge these fluctuations. We might not be able to effectively protect ourselves in the future against currency rate fluctuations, and our financial performance could suffer as a result. Even dollar-denominated foreign purchases may be affected by currency fluctuations, as suppliers seek to reflect appreciation in the local currency against the dollar in the price of the products that they provide. You should read

“Management’s Discussion and Analysis of Financial Condition and Results of Operations” for more information about our foreign currency exchange rate exposure and hedging activities.

The operation of the Company’s business is heavily dependent on its information systems.

We depend on a variety of information technology systems for the efficient functioning of our business. We rely on certain software vendors to maintain and periodically upgrade many of these systems so that they can continue to support our business. The software programs supporting many of our systems were licensed to the Company by independent software developers. The inability of these developers or the Company to continue to maintain and upgrade these information systems and software programs could disrupt or reduce the efficiency of our operations. In addition, costs and potential problems and interruptions associated with the implementation of new or upgraded systems and technology or with maintenance or adequate support of existing systems could also disrupt or reduce the efficiency of our operations. We also rely heavily on our information technology staff. If we cannot meet our staffing needs in this area, we may not be able to fulfill our technology initiatives or to provide maintenance on existing systems.

The loss of, or disruption in, one of our distribution centers and other factors affecting the distribution of merchandise, could have a material adverse effect on our business and operations.

Each of our operations depends on a single distribution facility. Most of the operation’s inventory is shipped directly from suppliers to its distribution center, where the inventory is then processed, sorted and shipped to our stores or to our wholesale customers. We depend on the orderly operation of this receiving and distribution process, which depends, in turn, on adherence to shipping schedules and effective management of the distribution centers. Although we believe that our receiving and distribution process is efficient and well positioned to support our expansion plans, we cannot assure you that we have anticipated all of the changing demands which our expanding operations will impose on our receiving and distribution system, or that events beyond our control, such as disruptions in operations due to fire or other catastrophic events, labor disagreements or shipping problems (whether in our own or in our third party vendors’ or carriers’ businesses), will not result in delays in the delivery of merchandise to our stores or to our wholesale customers. We also make changes in our distribution processes from time to time in an effort to improve efficiency, maximize capacity, etc. We cannot assure that these changes will not result in unanticipated delays or interruptions in distribution. We depend upon UPS for shipment of a significant amount of merchandise. An interruption in service by UPS for any reason could cause temporary disruptions in our business, a loss of sales and profits, and other material adverse effects.

Our freight cost is impacted by changes in fuel prices through surcharges. Fuel prices and surcharges affect freight cost both on inbound freight from vendors to our distribution centers and outbound freight from our distribution centers to our stores and wholesale customers. Increases in fuel prices and surcharges and other factors may increase freight costs and thereby increase our cost of goods sold.

We face a number of risks in opening new stores.

As part of our growth strategy, we intend to continue to open new stores, both in regional malls, where most of our operational experience lies, and in other venues with which we are less familiar, including lifestyle centers, major city street locations, and tourist destinations. We

increased our net store base by 572 in Fiscal 2005, 155 in Fiscal 2006 and 236 in Fiscal 2007, and currently plan to increase our net store base by approximately 233 to 243 stores in Fiscal 2008. We cannot assure you that we will be able to achieve our expansion goals or that we will be able to continue our history of operating new stores profitably. Further, we cannot assure you that any new store will achieve similar operating results to those of our existing stores or that new stores opened in markets in which we operate will not have a material adverse effect on the revenues and profitability of our existing stores. The success of our planned expansion will be dependent upon numerous factors, many of which are beyond our control, including the following:

	•		our ability to identify suitable markets and individual store sites within those markets;
	•		the competition for suitable store sites;
	•		our ability to negotiate favorable lease terms for new stores and renewals (including rent and other costs) with landlords;
	•		our ability to obtain governmental and other third-party consents, permits and licenses needed to construct and operate our stores;
	•		the ability to build and remodel stores on schedule and at acceptable cost;
	•		the availability of employees to staff new stores and our ability to hire, train, motivate and retain store personnel;
	•		the availability of adequate management and financial resources to manage an increased number of stores;
	•		our ability to adapt our distribution and other operational and management systems to an expanded network of stores; and
	•		our ability to attract customers and generate sales sufficient to operate new stores profitably.

Additionally, the results we expect to achieve during each fiscal quarter are dependent upon opening new stores on schedule. If we fall behind, we will lose expected sales and earnings between the planned opening date and the actual opening and may further complicate the logistics of opening stores, possibly resulting in additional delays.

Our results of operations are subject to seasonal and quarterly fluctuations, which could have a material adverse effect on the market price of our stock.

Our business is highly seasonal, with a significant portion of our net sales and operating income generated during the fourth quarter, which includes the holiday shopping season. Because a significant percentage of our net sales and operating income are generated in the fourth quarter, we have limited ability to compensate for shortfalls in fourth quarter sales or earnings by changes in our operations or strategies in other quarters. A significant shortfall in results for the fourth quarter of any year could have a material adverse effect on our annual results of operations and on the market price of our stock. Our quarterly results of operations also may fluctuate significantly based on such factors as:

	•		the timing of new store openings and renewals;
	•		the amount of net sales contributed by new and existing stores;
	•		the timing of certain holidays and sales events;

	•		changes in our merchandise mix;
	•		general economic, industry and weather conditions that affect consumer spending; and
	•		actions of competitors, including promotional activity.

A failure to increase sales at our existing stores may adversely affect our stock price and impact our results of operations.

A number of factors have historically affected, and will continue to affect, our comparable store sales results, including:

	•		competition;
	•		timing of holidays including sales tax holidays;
	•		general regional and national economic conditions;
	•		inclement weather;
	•		consumer trends, such as less disposable income due the impact of higher gasoline prices;
	•		changes in our merchandise mix;
	•		our ability to distribute merchandise efficiently to our stores;
	•		timing and type of sales events, promotional activities or other advertising;
	•		new merchandise introductions; and
	•		our ability to execute our business strategy effectively.

Our comparable store sales results have fluctuated in the past, and we believe such fluctuations may continue. The unpredictability of our comparable store sales may cause our revenue and results of operations to vary from quarter to quarter, and an unanticipated decline in revenues or operating income may cause our stock price to fluctuate significantly.

We are subject to regulatory proceedings and litigation that could have a material adverse effect on our financial condition and results of operations.

We are parties to certain lawsuits and regulatory proceedings, including those disclosed in Note 13 to the Consolidated Financial Statements. If these or similar matters are resolved against us, our results of operations or our financial condition could be adversely affected. Moreover, with retail operations in 50 states, Puerto Rico, the U.S. Virgin Islands and Canada, we are subject to federal, state, provincial, territorial and local regulations which impose costs and risks on our business. Changes in regulations could make compliance more difficult and costly and inadvertent violations could result in liability for damages or penalties.

If we lose key members of management or are unable to attract and retain the talent required for our business, our operating results could suffer.

Our performance depends largely on the efforts and abilities of members of our management team. Our executives have substantial experience and expertise in our business and have made significant contributions to our growth and success. The unexpected future loss of services of one or more key members of our management team could have an adverse effect on our business. In addition, future performance will depend upon our ability to attract, retain and

motivate qualified employees, including store personnel and field management, to keep pace with our expansion schedule. If we are unable to do so, our ability to meet our growth goals or to sustain expected levels of profitability may be compromised. Finally, our stores are decentralized, are managed through a network of geographically dispersed management personnel and historically experience a high degree of turnover. If we are for any reason unable to maintain appropriate controls on store operations, including the ability to control losses resulting from inventory and cash shrinkage, our sales and operating margins may be adversely affected. We cannot assure you that we will be able to attract and retain the personnel we need in the future.

Any acquisitions we make or new businesses we launch involve a degree of risk.

We have in the past, and may in the future, engage in acquisitions or launch new businesses to grow our revenues and meet our other strategic objectives. If any future acquisitions are not successfully integrated with our business, our ongoing operations could be adversely affected. Additionally, acquisitions or new businesses may not achieve desired profitability objectives or result in any anticipated successful expansion of the businesses or concepts. Although we review and analyze assets or companies we acquire, such reviews are subject to uncertainties and may not reveal all potential risks. Additionally, although we attempt to obtain protective contractual provisions, such as representations, warranties and indemnities, in connection with acquisitions, we cannot assure you that we can obtain such provisions in our acquisitions or that they will fully protect us from unforeseen costs of the acquisitions. We may also incur significant costs in connection with pursuing possible acquisitions even if the acquisition is not ultimately consummated.

ITEM 1B, UNRESOLVED STAFF COMMENTS

None.

ITEM 2, PROPERTIES

See Item 1, Business — Properties.

ITEM 3, LEGAL PROCEEDINGS

Environmental Matters

New York State Environmental Matters

In August 1997, the New York State Department of Environmental Conservation (“NYSDEC”) and the Company entered into a consent order whereby the Company assumed responsibility for conducting a remedial investigation and feasibility study (“RIFS”) and implementing an interim remediation measure (“IRM”) with regard to the site of a knitting mill operated by a former subsidiary of the Company from 1965 to 1969. The Company undertook the IRM and RIFS voluntarily, without admitting liability or accepting responsibility for any future remediation of the site. The Company has concluded the IRM and the RIFS. In the course of preparing the RIFS, the Company identified remedial alternatives with estimated undiscounted costs ranging from $-0- to $24.0 million, excluding amounts previously expended or provided for by the Company, as described in this Item. The United States Environmental Protection Agency, which has assumed primary regulatory responsibility for the site from NYSDEC, adopted a Proposed Remedial Action Plan (“PRAP”) in February 2007. The PRAP, which is subject to modification, recommends a combination of groundwater extraction and treatment and in-site chemical oxidation at an estimated present worth cost of approximately $10.7 million.

The Company has not ascertained what responsibility, if any, it has for any contamination in connection with the facility or what other parties may be liable in that connection and is unable to predict the extent of its liability, if any, beyond that voluntarily assumed by the consent order. The Company’s voluntary assumption of certain responsibility to date was based upon its judgment that such action was preferable to litigation to determine its liability, if any, for contamination related to the site. The Company intends to continue to evaluate the costs of further voluntary remediation versus the costs and uncertainty of litigation.

As part of its analysis of whether to undertake further voluntary action, the Company has assessed various methods of preventing potential future impact of contamination from the site on two public wells that are in the expected future path of the groundwater plume from the site. The Village of Garden City has proposed the installation at the supply wells of enhanced treatment measures at an estimated cost of approximately $2.6 million, with estimated future costs of up to $2.0 million. In the third quarter of Fiscal 2005, the Company provided for the estimated cost of a remedial alternative it considers adequate to prevent such impact and which it would be willing to implement voluntarily. The Village of Garden City has also asserted that the Company is liable for historical costs of treatment at the wells totaling approximately $3.4 million. Because of evidence with regard to when contaminants from the site of the Company’s former operations first reached the wells, the Company believes it should have no liability with respect to such historical costs.

In December 2005, the U.S. Environmental Protection Agency (“EPA”) notified the Company that it considers the Company a potentially responsible party (“PRP”) with respect to contamination at two Superfund sites in New York State. The sites were used as landfills for process wastes generated by a glue manufacturer, which acquired tannery wastes from several tanners, allegedly including the Company’s Whitehall tannery, for use as raw materials in the gluemaking process. The Company has no records indicating that it ever provided raw materials to the gluemaking operation and has not been able to establish whether EPA’s substantive allegations are accurate. The Company has joined a joint defense group with other tannery PRP’s with respect to one of the two sites. The joint defense group has developed an estimated cost of remediation for the site and proposed an allocation of liabilities among the PRP’s that, if accepted, is estimated to result in liability to the Company of approximately $100,000 with respect to the site. There is no assurance that the proposed allocation will be accepted or that the actual cost of remediation will not exceed the estimate. While the Company presently cannot predict with assurance its liability, if any, with respect to the second site associated with the glue manufacturer’s waste disposal, it does not presently expect that its aggregate exposure with respect to the two landfill sites will have a material adverse effect on its financial condition or results of operations.

Whitehall Environmental Matters

The Company has performed sampling and analysis of soil, sediments, surface water, groundwater and waste management areas at the Company’s former Volunteer Leather Company facility in Whitehall, Michigan.

The Company has submitted to the Michigan Department of Environmental Quality (“MDEQ”) and provided for certain costs associated with a remedial action plan (the “Plan”) designed to bring the property into compliance with regulatory standards for non-industrial uses. The Company estimates that the costs of resolving environmental contingencies related to the Whitehall property range from $1.4 million to $5.9 million, and considers the cost of

implementing the Plan to be the most likely cost within that range. While management believes that the Plan should be sufficient to satisfy applicable regulatory standards with respect to the site, until the Plan is finally approved by MDEQ, management cannot provide assurances that no further remediation will be required or that its estimate of the range of possible costs or of the most likely cost of remediation will prove accurate.

Accrual for Environmental Contingences

Related to all outstanding environmental contingencies, the Company had accrued $5.8 million as of February 3, 2007 and $5.4 million as of January 28, 2006. All such provisions reflect the Company’s estimates of the most likely cost (undiscounted, including both current and noncurrent portions) of resolving the contingencies, based on facts and circumstances as of the time they were made. There is no assurance that relevant facts and circumstances will not change, necessitating future changes to the provisions. Such contingent liabilities are included in the liability arising from provision for discontinued operations on the accompanying Consolidated Balance Sheets.

Other Matters

Patent Action

In January 2003, the Company was named a defendant in an action filed in the United States District Court for the Eastern District of Pennsylvania, Schoenhaus, et al. vs. Genesco Inc., et al., alleging that certain features of shoes in the Company’s Johnston & Murphy line infringe the plaintiff’s patent, misappropriate trade secrets and involve conversion of the plaintiff’s proprietary information and unjust enrichment of the Company. On January 10, 2005, the court granted summary judgment to the Company on the patent claims, finding that the accused products do not infringe the plaintiff’s patent. The plaintiffs appealed the summary judgment to the U.S. Court of Appeals for the Federal Circuit, pending which the trial court stayed the remainder of the case. On March 15, 2006, the Court of Appeals affirmed the summary judgment in the Company’s favor. In December 2006, the Company and the plaintiffs settled all remaining claims in the action, which was then dismissed.

California Employment Matters

On October 22, 2004, the Company was named a defendant in a putative class action filed in the Superior Court of the State of California, Los Angeles, Schreiner vs. Genesco Inc., et al., alleging violations of California wages and hours laws, and seeking damages of $40 million plus punitive damages. On May 4, 2005, the Company and the plaintiffs reached an agreement in principle to settle the action, subject to court approval and other conditions. In connection with the proposed settlement, to provide for the settlement payment to the plaintiff class and related expenses, the Company recognized a charge of $2.6 million before taxes included in Restructuring and Other, net in the Consolidated Statements of Earnings for the first three months of Fiscal 2006. On May 25, 2005, a second putative class action, Drake vs. Genesco Inc., et al., making allegations similar to those in the Schreiner complaint on behalf of employees of the Company’s Johnston & Murphy division, was filed by a different plaintiff in the California Superior Court, Los Angeles. On November 22, 2005, the Schreiner court granted final approval of the settlement and the Company and the Drake plaintiff reached an agreement on November 17, 2005 to settle that action. The two matters were resolved more favorably to the Company than originally expected, as not all members of the plaintiff class in Schreiner submitted claims and because the court required that plaintiff’s counsel bear the administrative expenses of the settlement. Consequently, the Company recognized income of $0.9 million before tax, reflected in Restructuring and Other, net, in the Consolidated Statements of Earnings for the third quarter of Fiscal 2006.

On November 4, 2005, a former employee gave notice to the California Labor Work Force Development Agency (“LWDA”) of a claim against Genesco for allegedly failing to provide a payroll check that is negotiable and payable in cash, on demand, without discount, at an established place of business in California, as required by the California Labor Code. On May 18, 2006, the same claimant filed a putative class, representative and private attorney general action alleging the same violations of the Labor Code in the Superior Court of California, Alameda County, seeking statutory penalties, damages, restitution, and injunctive relief. The Company disputes the material allegations of the complaint and intends to defend the matter vigorously.

ITEM 4, SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

There were no matters submitted to a vote of security holders during the fourth quarter of Fiscal 2007.

EXECUTIVE OFFICERS OF THE REGISTRANT

The officers of the Company are generally elected at the first meeting of the board of directors following the annual meeting of shareholders and hold office until their successors have been chosen and qualify. The name, age and office of each of the Company’s executive officers and certain information relating to the business experience of each are set forth below:

Hal N. Pennington, 69, Chairman and Chief Executive Officer. Mr. Pennington has served in various roles during his 45 year tenure with Genesco. He was vice president-wholesale for Johnston & Murphy from 1990 until his appointment as president of Dockers Footwear in August 1995. He was named president of Johnston & Murphy in February 1997 and named senior vice president in June 1998. Mr. Pennington was named executive vice president, chief operating officer and a director of the Company as of November 1999. Mr. Pennington was named president of the Company as of November 2000. Mr. Pennington was named chief executive officer of the Company as of April 2002. Mr. Pennington was named chairman as of October 2004.

Robert J. Dennis, 53, President and Chief Operating Officer. Mr. Dennis joined the Company in 2004 as chief executive officer of the Company’s newly acquired Hat World business. Mr. Dennis was named senior vice president of the Company in June 2004 and executive vice president and chief operating officer, with oversight responsibility for all the Company’s operating divisions, in October 2005. Mr. Dennis was named president of the Company in October 2006. Mr. Dennis joined Hat World in 2001 from Asbury Automotive, where he was employed in senior management roles beginning in 1998. Mr. Dennis was a partner with McKinsey and Company, an international consulting firm, from 1984 to 1997.

James S. Gulmi, 61, Senior Vice President — Finance and Chief Financial Officer. Mr. Gulmi joined the Company in 1971 as a financial analyst, appointed assistant treasurer in 1974 and named treasurer in 1979. He was elected a vice president in 1983 and assumed the responsibilities of chief financial officer in 1986. Mr. Gulmi was appointed senior vice president — finance in January 1996.

James C. Estepa, 55, Senior Vice President. Mr. Estepa joined the Company in 1985 and in February 1996 was named vice president operations of Genesco Retail, which included the Jarman Shoe Company, Journeys, Boot Factory and General Shoe Warehouse. Mr. Estepa was named senior vice president operations of Genesco Retail in June 1998. He was named president of Journeys in March 1999. Mr. Estepa was named senior vice president of the Company in April 2000. He was named president and chief executive officer of the Genesco Retail Group in 2001, assuming additional responsibilities of overseeing Jarman and Underground Station.

Jonathan D. Caplan, 53, Senior Vice President. Mr. Caplan rejoined the Company in 2002 as chief executive officer of the branded group and president of Johnston & Murphy and was named senior vice president in November 2003. Mr. Caplan first joined the Company in June 1982 and served as president of Genesco’s Laredo-Code West division from December 1985 to May 1992. After that time, Mr. Caplan was president of Stride Rite’s Children’s Group and then its Ked’s Footwear division, from 1992 to 1996. He was vice president, New Business Development and Strategy, for Service Merchandise Corporation from 1997 to 1998. Prior to joining Genesco in October 2002, Mr. Caplan served as president and chief executive officer of Hi-Tec Sports North America beginning in 1998.

Kenneth J. Kocher, 41, Senior Vice President. Mr. Kocher was named senior vice president in October 2006 in addition to continuing his role as president of Hat World. Mr. Kocher joined Hat World in 1997 as chief financial officer and was named president in October 2005. Prior to joining Hat World, he served as a controller with several companies and was a certified public accountant with Edie Bailley, a public accounting firm.

John W. Clinard, 59, Senior Vice President — Administration and Human Resources. Mr. Clinard has served in various human resources capacities during his 35 year tenure with Genesco. He was named vice president — human resources in June 1997. He was named vice president administration and human resources in November 2000. He was named senior vice president administration and human resources in October 2006.

Roger G. Sisson, 43, Senior Vice President, Secretary and General Counsel. Mr. Sisson joined the Company in 1994 as assistant general counsel and was elected secretary in February 1994. He was named general counsel in January 1996. Mr. Sisson was named vice president in November 2003. He was named senior vice president in October 2006. Before joining the Company, Mr. Sisson was associated with a Nashville law firm for approximately six years.

Mimi Eckel Vaughn, 40, Senior Vice President, Strategy and Business Development. Ms. Vaughn joined the Company in 2003 as vice president of strategy and business development. She was named senior vice president, strategy and business development in October 2006. Prior to joining the Company, Ms. Vaughn was executive vice president of business development and marketing, and acting chief financial officer from 2000 to 2001 for Link2Gov Corporation in Nashville. From 1993 to 1999, she was a consultant at McKinsey and Company in Atlanta. Prior to joining McKinsey, she held various corporate finance positions at Goldman, Sachs & Co., Wasserstein Perella & Co. Inc. and Drexel Burnham Lambert.

Matthew N. Johnson, 42, Vice President Finance and Treasurer. Mr. Johnson joined the Company in 1993 as manager, corporate finance and was elected assistant treasurer in December 1993. He was elected treasurer in June 1996. He was named vice president finance in October 2006. Prior to joining the Company, Mr. Johnson was a vice president in the corporate and institutional banking division of The First National Bank of Chicago.

Paul D. Williams, 52, Vice President and Chief Accounting Officer. Mr. Williams joined the Company in 1977, was named director of corporate accounting and financial reporting in 1993 and chief accounting officer in April 1995. He was named vice president in October 2006.

PART II

ITEM 5, MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

The Company’s common stock is listed on the New York Stock Exchange (Symbol: GCO) and the Chicago Stock Exchange. The following table sets forth for the periods indicated the high and low sales prices of the common stock as shown in the New York Stock Exchange Composite Transactions listed in the Wall Street Journal.

Fiscal Year ended January 28

				High				Low
2006		1st Quarter		$	31.50			$	25.16
		2nd Quarter			41.10				25.80
		3rd Quarter			40.27				33.41
		4th Quarter			42.89				35.61

Fiscal Year ended February 3

High

Low

2007		1st Quarter		$	42.60			$	37.33
		2nd Quarter			43.72				25.50
		3rd Quarter			38.73				26.05
		4th Quarter			42.15				35.46

There were approximately 4,900 common shareholders of record on March 22, 2007.

The Company has not paid cash dividends in respect of its common stock since 1973. The Company’s ability to pay cash dividends in respect of its common stock is subject to various restrictions. See Item 7 and Notes 6 and 8 to the Consolidated Financial Statements included in Item 8 and “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Future Capital Needs” for information regarding restrictions on dividends and redemptions of capital stock.

The following table provides information relating to the Company’s repurchase of common stock for the fourth quarter of Fiscal 2007.

ISSUER PURCHASES OF EQUITY SECURITIES

(d) Maximum

(c) Total

Number (or

Number of

Approximate

Shares (or

Dollar Value) of

Units)

shares (or Units)

(a) Total of

Purchased as

that May Yet Be

Number of

(b) Average

Part of Publicly

Purchased

Shares (or

Price Paid

Announced

Under the Plans

Units

per Share (or

Plans or

or Programs (1)

Period

Purchased

Unit)

Programs

(in thousands)

November 2006

10-29-06 to 11-25-06

-0-

-0-

-0-

$

18,741

December 2006

11-26-06 to 12-30-06

-0-

-0-

-0-

$

18,741

12-21-06(2)

244

$

38.54

-0-

-0-

January 2007

12-31-06 to 2-3-07

-0-

-0-

-0-

$

18,741

Stock Performance Graph

Refer to the Company’s 2007 Annual Report to Shareholders which is incorporated herein by reference solely as it relates to this item.

ITEM 6, SELECTED FINANCIAL DATA

Financial Summary

In Thousands except per common share data,		Fiscal Year End
financial statistics and other data		2007				2006				2005				2004				2003
Results of Operations Data
Net sales		$	1,460,478			$	1,283,876			$	1,112,681			$	837,379			$	828,307
Depreciation			40,306				34,622				31,266				24,607				21,788
Earnings from operations			121,045				112,827				88,064				51,649				66,279
Earnings before income taxes from continuing operations			111,118				102,470				77,102				44,360				58,409
Earnings from continuing operations			68,247				62,626				48,460				29,025				36,192
(Provision for) earnings from discontinued operations, net			(601	)			60				(211	)			(888	)			(165	)
Net earnings		$	67,646			$	62,686			$	48,249			$	28,137			$	36,027
Per Common Share Data
Earnings from continuing operations
Basic		$	3.00			$	2.73			$	2.19			$	1.32			$	1.65
Diluted			2.61				2.38				1.92				1.24				1.46
Discontinued operations
Basic			(.02	)			.01				(.01	)			(.04	)			(.01	)
Diluted			(.02	)			.00				(.01	)			(.04	)			.00
Net earnings
Basic			2.98				2.74				2.18				1.28				1.64
Diluted			2.59				2.38				1.91				1.20				1.46
Balance Sheet Data
Total assets		$	729,373			$	686,118			$	635,571			$	448,313			$	437,856
Long-term debt			109,250				106,250				161,250				86,250				103,245
Non-redeemable preferred stock			6,602				6,695				7,474				7,580				7,599
Common shareholders’ equity			398,624				342,056				264,591				204,665				172,420
Capital expenditures			73,287				56,946				39,480				22,540				40,332
Financial Statistics
Earnings from operations as a percent of net sales			8.3	%			8.8	%			7.9	%			6.2	%			8.0	%
Book value per share (common shareholders’ equity divided by common shares outstanding)		$	17.53			$	14.71			$	11.79			$	9.42			$	7.93
Working capital		$	200,330			$	184,986			$	176,245			$	197,569			$	183,652
Current ratio			2.5				2.2				2.4				3.4				3.3
Percent long-term debt to total capitalization			21.2	%			23.4	%			37.2	%			28.9	%			36.4	%
Other Data (End of Year)
Number of retail outlets*			2,009				1,773				1,618				1,046				991
Number of employees**			12,750				11,100				9,600				6,200				5,700

Reflected in earnings from continuing operations for Fiscal 2007, 2006, 2005, 2004 and 2003 were restructuring and other charges of $1.1 million, $2.3 million, $1.2 million, $1.9 million and $2.8 million, respectively. See Note 3 to the Consolidated Financial Statements for additional information regarding these charges.

Reflected in earnings from continuing operations for Fiscal 2005 was a favorable tax settlement of $0.5 million and for Fiscal 2005 and Fiscal 2004 were tax benefits of $0.2 million and $1.1 million, respectively, resulting from the reversal of previously accrued income taxes. See Note 9 to the Consolidated Financial Statements for additional information regarding these charges

Long-term debt includes current obligations. In December 2006, the Company entered into an amended and restated credit agreement in the aggregate principal amount of $200.0 million. In April 2004, the Company entered into a credit facility totaling $175.0 million. Included in the facility was a $100.0 million term loan used to fund a portion of the Hat World acquisition. In June 2003, the Company issued $86.3 million of 4 1/8% convertible subordinated debentures due 2023. The Company used the proceeds plus additional cash to pay off $103.2 million of its 5 1/2% convertible subordinated notes which resulted in a $2.6 million loss on the early retirement of debt reflected in earnings from continuing operations for Fiscal 2004. See Note 6 to the Consolidated Financial Statements for additional information regarding the Company’s debt.

The Company has not paid dividends on its Common Stock since 1973. See Notes 6 and 8 to the Consolidated Financial Statements for a description of limitations on the Company’s ability to pay dividends.

ITEM 7, MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward Looking Statements

This discussion and the notes to the Consolidated Financial Statements include certain forward-looking statements, which include statements regarding our intent, belief or expectations and all statements other than those made solely with respect to historical fact. Actual results could differ materially from those reflected by the forward-looking statements in this discussion and a number of factors may adversely affect the forward looking statements and the Company’s future results, liquidity, capital resources or prospects. For a discussion of some of these factors, See Item 1A, Risk Factors.

Overview

Description of Business

The Company is a leading retailer of branded footwear and of licensed and branded headwear, operating 2,009 retail footwear and headwear stores throughout the United States and Puerto Rico including 26 headwear stores in Canada as of February 3, 2007. The Company also designs, sources, markets and distributes footwear under its own Johnston & Murphy brand and under the licensed Dockers brand to more than 1,000 retail accounts in the United States, including a number of leading department, discount, and specialty stores.

The Company operates five reportable business segments (not including corporate): Journeys Group, comprised of the Journeys, Journeys Kidz and Shi by Journeys retail footwear chains, catalog and e-commerce operations; Underground Station Group, comprised of the Underground Station and Jarman retail footwear chains and e-commerce operations; Hat World Group, comprised of the Hat World, Lids, Hat Shack, Hat Zone, Head Quarters, Cap Connection and Lids Kids retail headwear chains and e-commerce operations; Johnston & Murphy Group, comprised of Johnston & Murphy retail operations, catalog and e-commerce operations and wholesale distribution; and Licensed Brands, comprised primarily of Dockers^® Footwear.

The Journeys retail footwear stores sell footwear and accessories primarily for 13 to 22 year old men and women. The stores average approximately 1,800 square feet. The Journeys Kidz retail footwear stores sell footwear primarily for younger children, ages five to 12. These stores average approximately 1,400 square feet. Shi by Journeys retail footwear stores, the first of which opened in November 2005, sell footwear and accessories to fashionable women in their early 20’s to mid 30’s. These stores average approximately 1,950 square feet.

The Underground Station Group retail footwear stores sell footwear and accessories primarily for men and women in the 20 to 35 age group. The Underground Station Group stores average approximately 1,725 square feet. In the fourth quarter of Fiscal 2004, the Company made the strategic decision to close 34 Jarman stores subject to its ability to negotiate lease terminations. These stores are not suitable for conversion to Underground Station stores. The Company intends to convert the remaining Jarman stores to Underground Station stores and close the remaining Jarman stores not closed in Fiscal 2005 as quickly as it is financially feasible, subject to landlord approval. During Fiscal 2007, 16 Jarman stores were closed and three Jarman stores were converted to Underground Station stores. During Fiscal 2006, 13 Jarman stores were

closed and two Jarman stores were converted to Underground Station stores.

The Hat World, Lids, Hat Shack, Hat Zone, Head Quarters and Cap Connection retail stores and kiosks sell licensed and branded headwear to men and women primarily in the early-teens to mid-20’s age group. These locations average approximately 750 square feet and are primarily in malls, airports, street level stores and factory outlet stores throughout the United States, Puerto Rico and in Canada.

Johnston & Murphy retail shops sell a broad range of men’s footwear and accessories. These shops average approximately 1,350 square feet and are located primarily in better malls nationwide. Johnston & Murphy shoes are also distributed through the Company’s wholesale operations to better department and independent specialty stores. In addition, the Company sells Johnston & Murphy footwear and accessories in factory stores located in factory outlet malls. These stores average approximately 2,425 square feet.

The Company entered into an exclusive license with Levi Strauss and Company to market men’s footwear in the United States under the Dockers^® brand name in 1991. The Dockers license agreement was renewed November 1, 2006. The Dockers license agreement, as amended, expires on December 31, 2009 with a Company option to renew through December 31, 2012, subject to certain conditions. The Company uses the Dockers name to market casual and dress casual footwear to men aged 30 to 55 through many of the same national retail chains that carry Dockers slacks and sportswear and in department and specialty stores across the country.

Strategy

The Company’s strategy is to seek long-term, organic growth by: 1) increasing the Company’s store base, 2) increasing retail square footage, 3) improving comparable store sales, 4) increasing operating margin and 5) enhancing the value of its brands. Our future results are subject to various risks, uncertainties and other challenges, including those discussed under the caption “Forward Looking Statements,” above and those discussed in Item 1A., “Risk Factors” above. Generally, the Company attempts to develop strategies to mitigate all the risks it views as material, including those discussed in Item 1A, “Risk Factors.” Among the most important of these factors are those related to consumer demand. Conditions in the external economy can affect demand, resulting in changes in sales and, as prices are adjusted to drive sales and control inventories, in gross margins. Because fashion trends influencing many of the Company’s target customers (particularly customers of Journeys Group, Underground Station Group and Hat World Group) can change rapidly, the Company believes that its ability to react quickly to those changes has been important to its success. Even when the Company succeeds in aligning its merchandise offerings with consumer preferences, those preferences may affect results by, for example, driving sales of products with lower average selling prices. Moreover, economic factors, such as high fuel prices, may reduce the consumer’s disposable income and reduce demand for the Company’s merchandise, regardless of the Company’s skill in detecting and responding to fashion trends. The Company believes its experience and discipline in merchandising and the buying power associated with its relative size in the industry are important to its ability to mitigate risks associated with changing customer preferences and other reductions in consumer demand. Also important to the Company’s long-term prospects are the availability and cost of appropriate locations for the Company’s retail concepts. The Company is opening stores in airports and on streets in major cities and tourist venues, among other locations, in an effort to broaden its selection of locations for additional stores beyond the malls that have traditionally been the

dominant venue for its retail concepts. The Company has also made and will continue to consider acquisitions to supplement its organic growth.

Summary of Operating Results

The Company’s net sales increased 13.8% during Fiscal 2007 compared to the prior year. The increase was driven primarily by the addition of new stores, a 2% increase in comparable store sales, a 34% increase in Licensed Brands sales and a 14% increase in Johnston & Murphy wholesale sales. Gross margin decreased slightly as a percentage of net sales during Fiscal 2007, primarily due to increased promotional activity in the Hat World Group and increased markdowns in the Journeys Group and Underground Station Group businesses, and off priced sales in one product line in the Licensed Brands business. Selling and administrative expenses decreased slightly as a percentage of net sales during Fiscal 2007 due to decreased expenses as a percentage of net sales in Journeys Group, Hat World Group, Johnston & Murphy Group and Licensed Brands. Operating income decreased as a percentage of net sales during Fiscal 2007 primarily due to decreased operating income in the Underground Station Group and decreased operating income as a percentage of net sales in the Journeys Group and Hat World Group businesses, partially offset by an increase in operating income in the Johnston & Murphy Group and Licensed Brands businesses.

Significant Developments

Hat Shack Acquisition

On January 11, 2007, Hat World acquired 100% of the outstanding stock of Hat Shack, Inc. for a purchase price of $16.6 million plus debt assumed of $2.2 million, after preliminary closing adjustments anticipated in the purchase agreement, funded from cash on hand. As of February 3, 2007, there were 49 Hat Shack retail headwear stores located primarily in the southeastern United States.

Amended Revolving Credit Facility

On December 1, 2006, the Company entered into an Amended and Restated Credit Agreement, (the “Credit Facility”) by and among the Company, certain subsidiaries of the Company party thereto, as other borrowers, the lenders party thereto and Bank of America, N.A., as administrative agent. The Credit Facility replaced the Company’s $105.0 million revolving credit facility. The Credit Facility is a revolving credit facility in the aggregate principal amount of $200.0 million, with a $20.0 million swingline loan sublimit and a $70.0 million sublimit for the issuance of standby letters of credit, and has a five-year term. The loans and other obligations under the Credit Facility are secured by substantially all of the presently owned and hereafter acquired non-real estate assets of the Company and certain subsidiaries of the Company. Borrowings under the Credit Facility bear interest at a variable rate determined based upon the level of availability under the Credit Facility. If availability under the Credit Facility falls below specified levels, the Company would then be subject to certain financial covenants. In addition, if availability under the Credit Facility falls below $20.0 million and the Company’s fixed charge coverage ratio (EBITDA less capital expenditures less cash taxes divided by cash interest expense and scheduled payments of principal indebtedness) is less than 1.0 to 1.0, the Company would be in default. For additional information, see Note 6 to the Consolidated Financial Statements.

Cap Connection Acquisition

On July 1, 2004, the Company acquired the assets and business of Edmonton, Alberta-based Cap

Connection Ltd., a 17 store Canadian specialty retailer of headwear. The purchase price for the Cap Connection business was approximately $1.7 million.

Hat World Acquisition

On April 1, 2004, the Company completed the acquisition of Hat World, a leading specialty retailer of licensed and branded headwear operating under the Hat World, Lids and Hat Zone names, for a total purchase price of approximately $179 million, including adjustments for $12.6 million of net cash acquired, a $1.2 million subsequent working capital adjustment and direct acquisition expenses of $2.8 million. The Company funded the acquisition and associated expenses with a $100.0 million, five-year term loan and the balance from cash on hand. The term loan was paid off in Fiscal 2007.

Restructuring and Other Charges

The Company recorded a pretax charge to earnings of $1.1 million ($0.7 million net of tax) in Fiscal 2007. The charge included $2.2 million of charges for asset impairments and the early termination of a license agreement offset by $1.1 million of gift card related income and a favorable litigation settlement.

The Company recorded a pretax charge to earnings of $2.3 million ($1.4 million net of tax) in Fiscal 2006. The charge included $1.7 million for the settlement of a California employment class action and $0.6 million for retail store asset impairments and lease terminations of thirteen Jarman stores. These lease terminations are the continuation of a plan announced by the Company in Fiscal 2004 to close or convert into other retail concepts all remaining Jarman stores.

The Company recorded a pretax charge to earnings of $1.2 million ($0.8 million net of tax) in Fiscal 2005. The charge included $1.8 million for lease terminations of 20 Jarman stores and retail store asset impairments offset by the recognition of a $0.6 million gain on the curtailment of the Company’s defined benefit pension plan.

Postretirement Benefit Liability Adjustments

The return on pension plan assets was a gain of $9.5 million for Fiscal 2007 compared to $8.0 million in Fiscal 2006. The interest rate used to measure benefit obligations increased from 5.50% to 5.75% in Fiscal 2007. As a result of the increase in return on plan assets and the increase in the discount rate, the pension liability was reduced to $14.3 million on the Consolidated Balance Sheets compared to $23.2 million last year. There was a decrease in the pension liability adjustment of $5.1 million (net of tax) in accumulated other comprehensive income in shareholders’ equity. Depending upon future interest rates and returns on plan assets, and other known and unknown factors, there can be no assurance that additional adjustments in future periods will not be required.

In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106 and 132(R)” (“SFAS No. 158”). This statement requires companies to recognize the overfunded or underfunded status of postretirement benefit plans to be recognized as either an asset or liability on the Consolidated Balance Sheets and the changes in the funded status are to be recognized in accumulated other comprehensive income, net of tax. As a result of the adoption of SFAS No. 158, the Company recognized a $0.8 million (net of tax) cumulative adjustment in accumulated

other comprehensive loss in shareholders’ equity for Fiscal 2007.

Share Repurchase Program

In a series of authorizations from Fiscal 1999-2003, the Company’s board of directors authorized the repurchase of up to 7.5 million shares. In June 2006, the board authorized an additional $20.0 million in stock repurchases. In August 2006, the board authorized an additional $30.0 million in stock repurchases. The Company repurchased 1,062,400 shares at a cost of $32.1 million during Fiscal 2007. In total, the Company has repurchased 8.2 million shares at a cost of $103.4 million from all authorizations as of February 3, 2007.

Discontinued Operations

For the year ended February 3, 2007, the Company recorded an additional charge to earnings of $1.0 million ($0.6 million net of tax) reflected in discontinued operations, including $1.1 million primarily for anticipated costs of environmental remedial alternatives related to former facilities operated by the Company offset by a $0.1 million gain for excess provisions to prior discontinued operations (see Note 13).

For the year ended January 28, 2006, the Company recorded a credit to earnings of $0.1 million ($0.1 million net of tax) reflected in discontinued operations, including a $0.9 million gain for excess provisions to prior discontinued operations offset by $0.8 million primarily for anticipated costs of environmental remedial alternatives related to former facilities operated by the Company (see Note 13).

For the year ended January 29, 2005, the Company recorded an additional charge to earnings of $0.3 million ($0.2 million net of tax) reflected in discontinued operations, including $1.0 million for anticipated costs of environmental remedial alternatives related to two manufacturing facilities formerly operated by the Company, offset by a $0.7 million gain for excess provisions to prior discontinued operations (see Note 13).

Critical Accounting Policies

Inventory Valuation

As discussed in Note 1 to the Consolidated Financial Statements, the Company values its inventories at the lower of cost or market.

In its wholesale operations, cost is determined using the first-in, first-out (FIFO) method. Market is determined using a system of analysis which evaluates inventory at the stock number level based on factors such as inventory turn, average selling price, inventory level, and selling prices reflected in future orders. The Company provides reserves when the inventory has not been marked down to market based on current selling prices or when the inventory is not turning and is not expected to turn at levels satisfactory to the Company.

In its retail operations, other than the Hat World segment, the Company employs the retail inventory method, applying average cost-to-retail ratios to the retail value of inventories. Under the retail inventory method, valuing inventory at the lower of cost or market is achieved as markdowns are taken or accrued as a reduction of the retail value of inventories.

Inherent in the retail inventory method are subjective judgments and estimates including

merchandise mark-on, markups, markdowns, and shrinkage. These judgments and estimates, coupled with the fact that the retail inventory method is an averaging process, could produce a range of cost figures. To reduce the risk of inaccuracy and to ensure consistent presentation, the Company employs the retail inventory method in multiple subclasses of inventory with similar gross margins, and analyzes markdown requirements at the stock number level based on factors such as inventory turn, average selling price, and inventory age. In addition, the Company accrues markdowns as necessary. These additional markdown accruals reflect all of the above factors as well as current agreements to return products to vendors and vendor agreements to provide markdown support. In addition to markdown provisions, the Company maintains provisions for shrinkage and damaged goods based on historical rates. A change of 10 percent from the recorded amounts for all such provisions would have changed inventory by $0.8 million at February 3, 2007.

The Hat World segment employs the moving average cost method for valuing inventories and applies freight using an allocation method. The Company provides a valuation allowance for slow-moving inventory based on negative margins and estimated shrink based on historical experience and specific analysis, where appropriate.

Inherent in the analysis of both wholesale and retail inventory valuation are subjective judgments about current market conditions, fashion trends, and overall economic conditions. Failure to make appropriate conclusions regarding these factors may result in an overstatement or understatement of inventory value.

Impairment of Long-Lived Assets

As discussed in Note 1 to the Consolidated Financial Statements, the Company periodically assesses the realizability of its long-lived assets and evaluates such assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Asset impairment is determined to exist if estimated future cash flows, undiscounted and without interest charges, are less than the carrying amount. Inherent in the analysis of impairment are subjective judgments about future cash flows. Failure to make appropriate conclusions regarding these judgments may result in an overstatement or understatement of the value of long-lived assets.

Environmental and Other Contingencies

The Company is subject to certain loss contingencies related to environmental proceedings and other legal matters, including those disclosed in Note 13 to the Company’s Consolidated Financial Statements. The Company has made provisions for certain of these contingencies, including approximately $1.1 million reflected in Fiscal 2007, $0.8 million reflected in Fiscal 2006 and $0.9 million reflected in Fiscal 2005. The Company monitors these matters on an ongoing basis and, on a quarterly basis, management reviews the Company’s reserves and accruals in relation to each of them, adjusting provisions as management deems necessary in view of changes in available information. Changes in estimates of liability are reported in the periods when they occur. Consequently, management believes that its reserve in relation to each proceeding is a best estimate of probable loss connected to the proceeding, or in cases in which no best estimate is possible, the minimum amount in the range of estimated losses, based upon its analysis of the facts and circumstances as of the close of the most recent fiscal quarter. However, because of uncertainties and risks inherent in litigation generally and in environmental proceedings in particular, there can be no assurance that future developments

will not require additional reserves to be set aside, that some or all reserves will be adequate or that the amounts of any such additional reserves or any such inadequacy will not have a material adverse effect upon the Company’s financial condition or results of operations.

Revenue Recognition

Retail sales are recorded at the point of sale and are net of estimated returns and exclude sales taxes. Catalog and internet sales are recorded at time of delivery to the customer and are net of estimated returns. Wholesale revenue is recorded net of estimated returns and allowances for markdowns, damages and miscellaneous claims when the related goods have been shipped and legal title has passed to the customer. Shipping and handling costs charged to customers are included in net sales. Estimated returns are based on historical returns and claims. Actual amounts of markdowns have not differed materially from estimates. Actual returns and claims in any future period may differ from historical experience.

Postretirement Benefits Plan Accounting

Substantially all full-time employees, who also had 1,000 hours of service in Calendar 2004, except employees in the Hat World segment, are covered by a defined benefit pension plan. The Company froze the defined benefit pension plan effective January 1, 2005. The Company also provides certain former employees with limited medical and life insurance benefits. The Company funds at least the minimum amount required by the Employee Retirement Income Security Act.

In September 2006, the FASB issued SFAS No. 158, which requires companies to recognize the overfunded or underfunded status of postretirement benefit plans as an asset or liability in its Consolidated Balance Sheets and to recognize changes in that funded status in accumulated other comprehensive loss, net of tax, in the year in which the changes occur. This statement did not change the accounting for plans required by SFAS No. 87, “Employers’ Accounting for Pensions” and it did not eliminate any of the expanded disclosures required by SFAS No. 132(R). On February 3, 2007, the Company adopted the recognition and disclosure provisions of SFAS No. 158. As a result of the adoption of SFAS No. 158, the Company recognized a $0.8 million (net of tax) cumulative adjustment in accumulated other comprehensive loss in shareholders’ equity for Fiscal 2007 related to the Company’s post-retirement medical and life insurance benefits. SFAS No. 158 also requires companies to measure the funded status of a plan as of the date of its fiscal year end. This requirement of SFAS No. 158 is not effective for the Company until Fiscal 2009. The Company is assessing the impact the adoption of the measurement date will have on its consolidated financial position and results of operations.

The Company accounts for the defined benefit pension plans using SFAS No. 87, “Employer’s Accounting for Pensions” (“SFAS No. 87”), as amended. Under SFAS No. 87, pension expense is recognized on an accrual basis over employees’ approximate service periods. The calculation of pension expense and the corresponding liability requires the use of a number of critical assumptions, including the expected long-term rate of return on plan assets and the assumed discount rate, as well as the recognition of actuarial gains and losses. Changes in these assumptions can result in different expense and liability amounts, and future actual experience can differ from these assumptions.

Long Term Rate of Return Assumption – Pension expense increases as the expected rate of return on pension plan assets decreases. The Company estimates that the pension plan assets

will generate a long-term rate of return of 8.25%. To develop this assumption, the Company considered historical asset returns, the current asset allocation and future expectations of asset returns. The expected long-term rate of return on plan assets is based on a long-term investment policy of 50% U.S. equities, 13% international equities, 35% U.S. fixed income securities and 2% cash equivalents. For Fiscal 2007, if the expected rate of return had been decreased by 1%, net pension expense would have increased by $0.9 million, and if the expected rate of return had been increased by 1%, net pension expense would have decreased by $0.9 million.

Discount Rate – Pension liability and future pension expense increase as the discount rate is reduced. The Company discounted future pension obligations using a rate of 5.75%, 5.50%, and 5.75% for Fiscal 2007, 2006 and 2005, respectively. The discount rate is determined based on the current yields on a portfolio of high quality long-term bonds. For Fiscal 2007, if the discount rate had been increased by 0.5%, net pension expense would have decreased by $0.6 million, and if the discount rate had been decreased by 0.5%, net pension expense would have increased by $0.6 million. In addition, if the discount rate had been increased by 0.5%, the projected benefit obligation would have decreased by $ 6.3 million and the accumulated benefit obligation would have decreased by $6.3 million. If the discount rate had been decreased by 0.5%, the projected benefit obligation would have been increased by $7.0 million and the accumulated benefit obligation would have increased by $7.0 million.

Amortization of Gains and Losses – The significant declines experienced in the financial markets have unfavorably impacted pension asset performance. The Company utilizes a calculated value of assets, which is an averaging method that recognizes changes in the fair values of assets over a period of five years. At the end of Fiscal 2007, the Company had unrecognized actuarial losses of $34.0 million. Accounting principles generally accepted in the United States require that the Company recognize a portion of these losses when they exceed a calculated threshold. These losses might be recognized as a component of pension expense in future years and would be amortized over the average future service of employees, which is currently seven years. Future changes in plan asset returns, assumed discount rates and various other factors related to the pension plan will impact future pension expense and liabilities, including increasing or decreasing unrecognized actuarial gains and losses.

The Company recognized expense for its defined benefit pension plans of $3.4 million, $3.7 million and $4.9 million in Fiscal 2007, 2006 and 2005, respectively. The Company’s board of directors approved freezing the Company’s defined pension benefit plan effective January 1, 2005. The Company’s pension expense is expected to decrease in Fiscal 2008 by approximately $1.1 million due to the net effect of an increase in the discount rate from 5.50% to 5.75% and a smaller actuarial loss to be amortized.

Share-Based Compensation

The Company has share-based compensation plans covering certain members of management and non-employee directors. Prior to January 29, 2006, the Company accounted for these plans under the recognition and measurement provisions of APB No. 25, “Accounting for Stock Issued to Employees,” and related interpretations, as permitted by SFAS No. 123. Accordingly, no compensation expense was recognized for fixed option plans because the exercise prices of employee stock options equaled or exceeded the market prices of the underlying stock on the date of grant.

Effective January 29, 2006, the Company adopted SFAS No. 123(R), using the modified prospective transition method. Under the modified prospective transition method, compensation cost recognized for Fiscal 2007 includes (i) compensation cost for all share-based payments granted prior to, but not yet vested as of January 29, 2006, based on the grant date fair value estimated in accordance with the provisions of SFAS No. 123; and (ii) compensation cost for all share-based payments granted on or after January 29, 2006, based on the grant date fair value estimated in accordance with SFAS No. 123(R). In accordance with the modified prospective method, the Company has not restated prior period results. However, prior to adoption of SFAS No. 123(R), share-based compensation had been included in pro forma disclosures in the Notes to the Consolidated Financial Statements for periods prior to Fiscal 2007.

The Company estimates the fair value of each option award on the date of grant using a Black-Scholes option pricing model. The Company based expected volatility on historical term structures. The Company based the risk free rate on an interest rate for a bond with a maturity commensurate with the expected term estimate. The Company estimated the expected term of stock options using historical exercise and employee termination experience. The Company does not currently pay a dividend.

In addition to the key assumptions used in the Black-Scholes model, the estimated forfeiture rate at the time of valuation (which is based on historical experience for similar options) is a critical assumption, as it reduces expense ratably over the vesting period. Shared-based compensation expense is recorded based on a 2% expected forfeiture rate and adjusted annually for actual forfeitures. The Company reviews the expected forfeiture rate annually to determine if that percent is still reasonable based on historical experience.

The Company believes its estimates are reasonable in the context of actual (historical) experience. The impact of adopting SFAS No. 123(R) on future results will depend on, among other matters, levels of share-based payments granted in the future, actual forfeiture rates and the timing of option exercises.

Comparable Sales

Comparable store sales begin in the 53rd week of operation. Temporary store closings are excluded from the computation of comparable store calculation for every full week of the store closing. Expanded stores are excluded from the Company’s footwear operations comparable store sales calculation until the 53rd week of operation but are included in the calculation of the Company’s headwear comparable store sales calculation. E-commerce and catalog sales are excluded from comparable store sales calculations.

Results of Operations — Fiscal 2007 Compared to Fiscal 2006

The Company’s net sales for Fiscal 2007 (53 weeks) increased 13.8% to $1.5 billion from $1.3 billion in Fiscal 2006 (52 weeks). Net sales for the 53^rd week of Fiscal 2007 were $24.7 million based on actual retail sales and estimated wholesales sales. Wholesale sales are recognized upon shipment. The Company believes that a portion of the shipments that occurred in the final week would have occurred during the quarter even if it had not included the final week. Its estimate of the amount of such sales is excluded from the estimate of sales for the 53^rd week. Excluding the 53^rd week in Fiscal 2007, the net sales increase from the comparable 52-week period last year was approximately

12%. Gross margin increased 12.0% to $730.8 million in Fiscal 2007 from $652.4 million in Fiscal 2006 but decreased as a percentage of net sales from 50.8% to 50.0%. Selling and administrative expenses in Fiscal 2007 increased 13.3% from Fiscal 2006 but decreased as a percentage of net sales from 41.9% to 41.7%. The Company records buying and merchandising and occupancy costs in selling and administrative expense. Because the Company does not include these costs in cost of sales, the Company’s gross margin may not be comparable to other retailers that include these costs in the calculation of gross margin. Explanations of the changes in results of operations are provided by business segment in discussions following these introductory paragraphs.

Earnings before income taxes from continuing operations (“pretax earnings”) for Fiscal 2007 were $111.1 million compared to $102.5 million for Fiscal 2006. Pretax earnings for Fiscal 2007 included restructuring and other charges of $1.1 million, including $2.2 million of charges for asset impairments and the termination of a small license agreement offset by $1.1 million of income for gift card breakage and a favorable litigation settlement. Pretax earnings for Fiscal 2006 included restructuring and other charges of $2.3 million, including $1.7 million for settlement of a previously announced class action lawsuit (see Note 13 to the Consolidated Financial Statements), retail store asset impairments and lease terminations of 13 Jarman stores. These lease terminations are the continuation of a plan announced by the Company in Fiscal 2004 to close or convert into other retail concepts all remaining Jarman stores.

Net earnings for Fiscal 2007 were $67.6 million ($2.59 diluted earnings per share) compared to $62.7 million ($2.38 diluted earnings per share) for Fiscal 2006. Net earnings for Fiscal 2007 included $0.6 million ($0.02 diluted earnings per share) charge to earnings (net of tax), including $0.7 million primarily for anticipated costs of environmental remedial alternatives related to former facilities operated by the Company offset by a $0.1 million gain for excess provisions to prior discontinued operations. Net earnings for Fiscal 2006 included $0.1 million ($0.00 diluted earnings per share) credit to earnings (net of tax), including a $0.9 million gain for excess provisions to prior discontinued operations offset by $0.8 million primarily for anticipated costs of environmental remedial alternatives related to former facilities operated by the Company. The Company recorded an effective federal income tax rate of 38.6% for Fiscal 2007 compared to 38.9% for Fiscal 2006.

Journeys Group

		Fiscal Year Ended								%
		2007				2006				Change
		(dollars in thousands)
Net sales		$	696,889			$	593,516				17.4	%
Earnings from operations		$	83,835			$	73,346				14.3	%
Operating margin			12.0	%			12.4	%

Net sales from Journeys Group increased 17.4% to $696.9 million for Fiscal 2007 from $593.5 million for Fiscal 2006. The increase reflects a 13% increase in average Journeys stores operated (i.e., the sum of the number of stores open on the first day of the fiscal year and the last day of each fiscal month during the year divided by thirteen) and a 6% increase in comparable store sales. The comparable store sales increase reflects an 11% increase in footwear unit comparable sales, offset by a 4% decrease in average price per pair of shoes. The average price decrease

primarily reflects changes in product mix. Total unit sales increased 25% during the same period. The store count for Journeys was 853 stores at the end of Fiscal 2007, including 73 Journeys Kidz stores and 12 Shi by Journeys stores, compared to 761 Journeys stores at the end of Fiscal 2006, including 50 Journeys Kidz stores and one Shi by Journeys store.

Journeys Group earnings from operations for Fiscal 2007 increased 14.3% to $83.8 million, compared to $73.3 million for Fiscal 2006, primarily attributable to the increase in sales and decreased expenses as a percentage of net sales, reflecting lower bonus accruals.

Underground Station Group

		Fiscal Year Ended								%
		2007				2006				Change
		(dollars in thousands)
Net sales		$	155,069			$	164,054				(5.5	)%
Earnings from operations		$	3,844			$	10,890				(64.7	)%
Operating margin			2.5	%			6.6	%

Net sales from the Underground Station Group (comprised of Underground Station and Jarman retail stores) decreased 5.5% to $155.1 million for Fiscal 2007 from $164.1 million for Fiscal 2006. Sales for Underground Station stores increased 1% for Fiscal 2007. Sales for Jarman retail stores decreased 29% for Fiscal 2007, reflecting a 29% decrease in the average number of Jarman stores operated related to the Company’s strategy of closing Jarman stores or converting them to Underground Station stores. Comparable store sales decreased 10% for the Underground Station Group, 9% for Underground Station stores and 12% for Jarman stores. The decrease in comparable store sales was primarily due to generally weak demand for athletic shoes, exacerbated in the second half of the year by the loss of the chain’s most popular athletic brand from its product offering and what management believes was an overall softness in the urban market. The average price per pair of shoes for Underground Station Group decreased 4% for Fiscal 2007 and unit sales decreased 2% during the same period. The average price per pair of shoes at Underground Station stores decreased 5% during the year, primarily reflecting changes in product mix and increased markdowns. Unit sales increased 6% during Fiscal 2007. Underground Station Group operated 223 stores at the end of Fiscal 2007, including 193 Underground Station stores. During Fiscal 2007, three Jarman stores were converted to Underground Station stores. The Company had operated 229 stores at the end of Fiscal 2006, including 180 Underground Station stores.

Underground Station Group earnings from operations for Fiscal 2007 decreased 64.7% to $3.8 million from $10.9 million for the same period last year. The decrease was due to decreased net sales, to decreased gross margin as a percentage of net sales, reflecting increased markdowns, and to increased expenses as a percentage of net sales from negative leverage in the store related expenses due to the negative comparable store sales.

Hat World Group

		Fiscal Year Ended								%
		2007				2006				Change
		(dollars in thousands)
Net sales		$	342,641			$	297,271				15.3	%
Earnings from operations		$	41,359			$	40,133				3.1	%
Operating margin			12.1	%			13.5	%

Net sales from Hat World Group increased 15.3% to $342.6 million for Fiscal 2007 from $297.3 million for Fiscal 2006. The increase reflects primarily a 16% increase in average stores operated. Hat World Group comparable store sales decreased 1% for Fiscal 2007. The Company believes the comparable store sales were impacted by decreased demand in the urban market, which the Company believes is the primary market served by approximately 110 stores in the Hat World Group. This was partially offset by strength in core and fashion-oriented Major League Baseball products, as well as branded action and performance headwear. Hat World Group operated 785 stores at Fiscal 2007, including 26 stores in Canada, three Lids Kids and 49 Hat Shack stores acquired in January 2007, compared to 641 stores at the end of Fiscal 2006, including 18 stores in Canada.

Hat World Group earnings from operations for Fiscal 2007 increased 3.1% to $41.4 million compared to $40.1 million for Fiscal 2006. The increase in operating income was primarily due to increased net sales and to decreased expenses as a percentage of net sales, offset by decreased gross margin as a percentage of net sales reflecting increased promotional activity.

Johnston & Murphy Group

		Fiscal Year Ended								%
		2007				2006				Change
		(dollars in thousands)
Net sales		$	186,979			$	170,015				10.0	%
Earnings from operations		$	15,337			$	10,396				47.5	%
Operating margin			8.2	%			6.1	%

Johnston & Murphy Group net sales increased 10.0% to $187.0 million for Fiscal 2007 from $170.0 million for Fiscal 2006, reflecting a 3% increase in comparable store sales, a 3% increase in average retail stores operated and a 14% increase in Johnston & Murphy wholesale sales. Unit sales for the Johnston & Murphy wholesale business increased 13% in Fiscal 2007, and the average price per pair of shoes increased 1% for the same period. Retail operations accounted for 74.3% of Johnston & Murphy Group sales in Fiscal 2007, down slightly from 75.2% in Fiscal 2006 primarily due to increased wholesale sales. The average price per pair of shoes for Johnston & Murphy retail decreased 2% (2% in the Johnston & Murphy shops) in Fiscal 2007, primarily due to changes in product mix, while footwear unit sales increased 8% during the same period. The store count for Johnston & Murphy retail operations at the end of Fiscal 2007 included 148 Johnston & Murphy stores and factory stores compared to 142 Johnston & Murphy stores and factory stores at the end of Fiscal 2006.

Johnston & Murphy earnings from operations for Fiscal 2007 increased 47.5% to $15.3 million from $10.4 million for Fiscal 2006, primarily due to increased net sales, to increased gross margin

as a percentage of net sales, reflecting improvement in the retail business due to improved sourcing and lower markdowns, and to decreased expenses as percentage of net sales reflecting operating leverage from the comparable store and wholesale sales increases and decreased advertising expenses.

Licensed Brands

		Fiscal Year Ended								%
		2007				2006				Change
		(dollars in thousands)
Net sales		$	78,422			$	58,730				33.5	%
Earnings from operations		$	6,777			$	4,167				62.6	%
Operating margin			8.6	%			7.1	%

Licensed Brands’ net sales increased 33.5% to $78.4 million for Fiscal 2007 from $58.7 million for Fiscal 2006. The sales increase is primarily attributable to an increase in demand for Dockers Footwear, related to retail sell-through, due in part, to increased shelf space in existing accounts. Unit sales for Dockers Footwear increased 31% for Fiscal 2007 and the average price per pair of shoes increased 1% for the same period.

Licensed Brands’ earnings from operations for Fiscal 2007 increased 62.6%, from $4.2 million for Fiscal 2006 to $6.8 million, primarily due to increased net sales and to decreased expenses as a percentage of net sales.

Corporate, Interest Expenses and Other Charges

Corporate and other expenses for Fiscal 2007 were $30.1 million compared to $26.1 million for Fiscal 2006. Corporate and other expenses for Fiscal 2007 included $1.1 million of restructuring and other charges, primarily for asset impairments and the termination of a small licensing agreement offset by income for gift card breakage and a favorable litigation settlement. Corporate and other expenses for Fiscal 2006 included $2.3 million of restructuring and other charges, primarily for settlement of a previously announced class action lawsuit, retail store asset impairments and lease terminations of 13 Jarman stores. In addition to the listed items in both periods, the increase in corporate expenses for Fiscal 2007 is attributable primarily to a $6.4 million increase of share-based compensation and restricted stock expense.

Interest expense decreased 8.7% from $11.5 million in Fiscal 2006 to $10.5 million in Fiscal 2007, primarily due to the decrease in the average term loan outstanding. Borrowings under the Company’s revolving credit facility averaged $16.8 million for Fiscal 2007. Borrowings under the Company’s revolving credit facility averaged less than $0.1 million for Fiscal 2006.

Interest income decreased 50.1% from $1.1 million in Fiscal 2006 to $0.6 million in Fiscal 2007, due to the decrease in average short-term investments.

Results of Operations — Fiscal 2006 Compared to Fiscal 2005

The Company’s net sales for Fiscal 2006 increased 15.4% to $1.3 billion from $1.1 billion in Fiscal 2005. Gross margin increased 18.4% to $652.4 million in Fiscal 2006 from $551.1 million in Fiscal 2005 and increased as a percentage of net sales from 49.5% to 50.8%. Selling and administrative expenses in Fiscal 2006 increased 16.4% from Fiscal 2005 and increased as a

percentage of net sales from 41.5% to 41.9%. The Company records buying and merchandising and occupancy costs in selling and administrative expense. Because the Company does not include these costs in cost of sales, the Company’s gross margin may not be comparable to other retailers that include these costs in the calculation of gross margin. Explanations of the changes in results of operations are provided by business segment in discussions following these introductory paragraphs.

Earnings before income taxes from continuing operations (“pretax earnings”) for Fiscal 2006 were $102.5 million compared to $77.1 million for Fiscal 2005. Pretax earnings for Fiscal 2006 included restructuring and other charges of $2.3 million, including $1.7 million for settlement of a previously announced class action lawsuit (see Note 13 to the Consolidated Financial Statements), retail store asset impairments and lease terminations of 13 Jarman stores. These lease terminations are the continuation of a plan previously announced by the Company in Fiscal 2004. Pretax earnings for Fiscal 2005 included restructuring and other charges of $1.2 million, primarily for lease terminations of 20 Jarman stores and retail asset impairments offset by the gain on the curtailment of the Company’s defined benefit pension plan.

Net earnings for Fiscal 2006 were $62.7 million ($2.38 diluted earnings per share) compared to $48.2 million ($1.91 diluted earnings per share) for Fiscal 2005. Net earnings for Fiscal 2006 included $0.1 million ($0.00 diluted earnings per share) credit to earnings (net of tax), including a $0.9 million gain for excess provisions to prior discontinued operations offset by $0.8 million primarily for anticipated costs of environmental remedial alternatives related to former facilities operated by the Company. Net earnings for Fiscal 2005 included $0.2 million ($0.01 diluted earnings per share) charge to earnings (net of tax) primarily for anticipated costs of environmental remedial alternatives related to two manufacturing facilities operated by the Company, offset by $3.3 million from settlements with certain insurance carriers regarding the sites and by excess provisions from prior discontinued operations. The Company recorded an effective federal income tax rate of 38.9% for Fiscal 2006 compared to 37.1% for Fiscal 2005. The year-to-year change reflects a favorable tax settlement of $0.5 million and a tax benefit of $0.2 million resulting from the reversal of previously accrued income taxes in Fiscal 2005. Because these amounts were reflected as current year income tax benefits for Fiscal 2005, it reduced the Company’s effective federal income tax rate for Fiscal 2005.

Journeys Group

		Fiscal Year Ended								%
		2006				2005				Change
		(dollars in thousands)
Net sales		$	593,516			$	521,942				13.7	%
Earnings from operations		$	73,346			$	60,065				22.1	%
Operating margin			12.4	%			11.5	%

Net sales from Journeys Group increased 13.7% to $593.5 million for Fiscal 2006 from $521.9 million for Fiscal 2005. The increase reflects primarily a 7% increase in comparable store sales and a 5% increase in average Journeys Group stores operated. The comparable store sales increase reflects a 10% increase in footwear unit comparable sales, offset by a 2% decrease in average price per pair of shoes. The average price decrease primarily reflects changes in product mix, while unit sales increased 16% during the same period driven by fashion athletic, euro casuals, board sport shoes and women’s fashion footwear. The store count for Journeys was 761

stores at the end of Fiscal 2006, including 50 Journeys Kidz stores, compared to 695 Journeys stores at the end of Fiscal 2005, including 41 Journeys Kidz stores.

Journeys Group earnings from operations for Fiscal 2006 increased 22.1% to $73.3 million, compared to $60.1 million for Fiscal 2005, primarily reflecting the increase in sales and increased gross margin as a percentage of net sales, reflecting changes in product mix and decreased markdowns as a percentage of net sales.

Underground Station Group

		Fiscal Year Ended								%
		2006				2005				Change
		(dollars in thousands)
Net sales		$	164,054			$	148,039				10.8	%
Earnings from operations		$	10,890			$	6,963				56.4	%
Operating margin			6.6	%			4.7	%

Net sales from the Underground Station Group (comprised of Underground Station and Jarman retail stores) increased 10.8% to $164.1 million for Fiscal 2006 from $148.0 million for Fiscal 2005. Sales for Underground Station stores increased 25% for Fiscal 2006. Sales for Jarman retail stores decreased 23% for Fiscal 2006, reflecting a 23% decrease in Jarman stores operated related to the Company’s strategy of closing Jarman stores or converting them to Underground Station stores. Comparable store sales were up 7% for the Underground Station Group, with comparable store sales for Underground Station stores up 10%. The comparable sales performance in the Underground Station stores was primarily driven by continued increases in average selling prices and a 3% increase in footwear unit comparable sales. The average price per pair of shoes for Underground Station Group increased 5% for Fiscal 2006 and unit sales increased 3% during the same period. The average price per pair of shoes at Underground Station stores increased 6% during the year, primarily reflecting changes in product mix and lower markdowns as a percentage of net sales. Underground Station Group operated 229 stores at the end of Fiscal 2006, including 180 Underground Station stores. During Fiscal 2006, two Jarman stores were converted to Underground Station stores. The Company had operated 229 stores at the end of Fiscal 2005, including 165 Underground Station stores.

Underground Station Group earnings from operations for Fiscal 2006 increased 56.4% to $10.9 million compared to $7.0 million for the same period last year. The increase was due to increased sales, increased gross margin as a percentage of net sales, reflecting changes in product mix and decreased markdowns, and to decreased expenses as a percentage of net sales.

Hat World Group

		Fiscal Year Ended*								%
		2006				2005				Change
		(dollars in thousands)
Net sales		$	297,271			$	216,270			NM
Earnings from operations		$	40,133			$	30,522			NM
Operating margin			13.5	%			14.1	%

for Fiscal 2005 are for the period April 1, 2004 – January 29, 2005, and are therefore not comparable to the twelve month period ended January 28, 2006.

Hat World Group comparable store sales increased 4% for Fiscal 2006. Hat World’s comparable store sales increase was primarily driven by an increased number of units sold and higher selling prices. Hat World operated 641 stores at the end of Fiscal 2006, including 18 stores in Canada. Hat World operated 552 stores at the end of Fiscal 2005, including 19 stores in Canada.

Johnston & Murphy Group

		Fiscal Year Ended								%
		2006				2005				Change
		(dollars in thousands)
Net sales		$	170,015			$	162,599				4.6	%
Earnings from operations		$	10,396			$	9,230				12.6	%
Operating margin			6.1	%			5.7	%

Johnston & Murphy Group net sales increased 4.6% to $170.0 million for Fiscal 2006 from $162.6 million for Fiscal 2005, reflecting primarily a 7% increase in comparable store sales for Johnston & Murphy retail operations and a 5% increase in Johnston & Murphy wholesale sales. Unit sales for the Johnston & Murphy wholesale business increased 8% in Fiscal 2006, while the average price per pair of shoes decreased 3% for the same period. Retail operations accounted for 75.2% of Johnston & Murphy segment sales in Fiscal 2006, down slightly from 75.3% in Fiscal 2005 primarily due to increased wholesale sales. The average price per pair of shoes for Johnston & Murphy retail decreased 5% (7% in the Johnston & Murphy shops) in Fiscal 2006, primarily due to changes in product mix, while footwear unit sales increased 7% during the same period. The store count for Johnston & Murphy retail operations at the end of Fiscal 2006 and Fiscal 2005 included 142 Johnston & Murphy stores and factory stores.

Johnston & Murphy Group earnings from operations for Fiscal 2006 increased 12.6% to $10.4 million from $9.2 million for Fiscal 2005, primarily due to increased net sales and increased gross margin as a percentage of net sales, reflecting a healthier product mix, resulting in reduced promotional selling and improvements in sourcing.

Licensed Brands

		Fiscal Year Ended								%
		2006				2005				Change
		(dollars in thousands)
Net sales		$	58,730			$	63,508				(7.5	)%
Earnings from operations		$	4,167			$	6,075				(31.4	)%
Operating margin			7.1	%			9.6	%

Licensed Brands’ net sales, primarily consisting of sales of Dockers^® branded footwear sold under a license from Levi Strauss & Co., decreased 7.5% to $58.7 million for Fiscal 2006 from $63.5 million for Fiscal 2005. Unit sales for Dockers Footwear decreased 11% for Fiscal 2006 while the average price per pair of shoes increased 3% for the same period. The sales decrease reflected some product quality issues, a change in merchandising strategy of a key customer and other customers pursuing private label initiatives at the expense of branded product offerings.

Licensed Brands’ earnings from operations for Fiscal 2006 decreased 31.4% from $6.1 million for Fiscal 2005 to $4.2 million, primarily due to decreased net sales, decreased gross margin as a percentage of net sales, reflecting changes in product mix, and to increased expenses as a percentage of net sales.

Corporate, Interest Expenses and Other Charges

Corporate and other expenses for Fiscal 2006 were $26.1 million compared to $24.8 million for Fiscal 2005. Corporate and other expenses for Fiscal 2006 included $2.3 million of restructuring and other charges, primarily for settlement of a previously announced class action lawsuit, retail store asset impairments and lease terminations of 13 Jarman stores. Corporate and other expenses for Fiscal 2005 included $1.2 million of restructuring and other charges, primarily for lease terminations of 20 Jarman stores and retail store asset impairments offset by the gain on the curtailment of the Company’s defined pension benefit plan. In addition to the listed items in both periods, the increase in corporate expenses for Fiscal 2006 is attributable primarily to increased bonus accruals and restricted stock expense.

Interest expense increased 1% from $11.4 million in Fiscal 2005 to $11.5 million in Fiscal 2006, primarily due to the increase in bank activity fees as a result of new stores added from the acquisition of Hat World and new stores opened during the year, offset by decreased revolver borrowings in Fiscal 2006 versus Fiscal 2005. Borrowings under the Company’s revolving credit facility averaged less than $0.1 million for Fiscal 2006. Borrowings under the Company’s revolving credit facility averaged $5.2 million for Fiscal 2005.

Interest income increased 173.7% from $0.4 million in Fiscal 2005 to $1.1 million in Fiscal 2006, due to the increase in average short-term investments and increased interest rates.

Liquidity and Capital Resources

The following table sets forth certain financial data at the dates indicated.

		Feb. 3,				Jan. 28,				Jan. 29,
		2007				2006				2005
		(dollars in millions)
Cash and cash equivalents		$	16.7			$	60.5			$	60.1
Working capital		$	200.3			$	185.0			$	176.2
Long-term debt		$	109.3			$	106.3			$	161.3

Working Capital

The Company’s business is somewhat seasonal, with the Company’s investment in inventory and accounts receivable normally reaching peaks in the spring and fall of each year. Historically, cash flow from operations has been generated principally in the fourth quarter of each fiscal year.

Cash provided by operating activities was $70.6 million in Fiscal 2007 compared to $105.0 million in Fiscal 2006. The $34.4 million decrease in cash flow from operating activities from last year reflects primarily a decrease in cash flow from changes in other accrued liabilities of $29.3 million and a decrease in cash flow from changes in accounts payable of $17.8 million

offset by an increase in cash flow from an increase in net earnings of $5.0 million. The $29.3 million decrease in cash flow from other accrued liabilities was due to an $18.5 million increase in income taxes paid and increased bonus payments combined with lower bonus accruals. The $17.8 million decrease in cash flow from accounts payable was due to changes in buying patterns and payment terms negotiated with individual vendors.

The $28.4 million increase in inventories at February 3, 2007 from January 28, 2006 levels reflects inventory purchased to support the net increase of 236 stores in Fiscal 2007 which included 49 Hat Shack stores acquired in January 2007.

Accounts receivable at February 3, 2007 increased $3.1 million compared to January 28, 2006 due primarily to increased wholesale sales.

Cash provided by operating activities was $105.0 million in Fiscal 2006 compared to $99.8 million in Fiscal 2005. The $5.2 million increase in cash flow from operating activities reflects primarily an increase in cash flow from changes in accounts payable of $15.6 million and an increase in net earnings of $14.4 million, offset by a decrease in cash flow from changes in inventory of $18.3 million and a decrease in cash flow from changes in other accrued liabilities of $4.0 million. The $15.6 million increase in cash flow from accounts payable was due to changes in buying patterns and inventory growth. The $18.3 million decrease in cash flow from inventory was due to growth in Journey’s and Hat World’s inventory to support the growth in those businesses as well as the decision to carry more inventory per store in Hat World. The $4.0 million decrease in cash flow from other accrued liabilities was due to increased bonus payments in Fiscal 2006.

The $23.5 million increase in inventories at January 28, 2006 from January 29, 2005 levels reflects inventory purchased to support the net increase of 155 stores in Fiscal 2006 and the decision to carry more inventory per store in Hat World.

Accounts receivable at January 28, 2006 increased $3.3 million compared to January 29, 2005 primarily due to increased tenant allowance receivables.

Cash provided (or used) due to changes in accounts payable and accrued liabilities are as follows:

		Fiscal Year Ended
		2007				2006				2005
		(in thousands)
Accounts payable		$	(9,068	)		$	8,744			$	(6,902	)
Accrued liabilities		$	(11,962	)			17,357				21,341
		$	(21,030	)		$	26,101			$	14,439

The fluctuations in cash provided due to changes in accounts payable for Fiscal 2007 from Fiscal 2006 are due to changes in buying patterns and payment terms negotiated with individual vendors and for Fiscal 2006 from Fiscal 2005 are due to changes in buying patterns and payment terms negotiated with individual vendors and the impact of the Hat World acquisition. The change in cash provided due to changes in accrued liabilities for Fiscal 2007 from Fiscal 2006 was due primarily to increased tax payments and increased bonus payments combined with lower bonus

accruals and the change in accrued liabilities for Fiscal 2006 from Fiscal 2005 was due primarily to increased bonus payments.

Revolving credit borrowings averaged $16.8 million during Fiscal 2007 and there was an average of less than $0.1 million outstanding during Fiscal 2006, as cash generated from operations and cash on hand funded most of the seasonal working capital requirements and capital expenditures for Fiscal 2007. The Company acquired Hat Shack in January 2007 for $16.6 million and paid $1.6 million of the $2.2 million debt assumed in the acquisition which contributed to the negative cash flow and revolver borrowings at the end of Fiscal 2007. On December 1, 2006, the Company entered into an Amended and Restated Credit Agreement (the “Credit Facility”) by and among the Company, certain subsidiaries of the Company party thereto, as other borrowers, the lenders party thereto and Bank of America, N.A., as administrative agent. The Credit Facility replaced the Company’s $105.0 million revolving credit facility. The Credit Facility is a revolving credit facility in the aggregate principal amount of $200.0 million, with a $20.0 million swingline loan sublimit and a $70.0 million sublimit for the issuance of standby letters of credit, and has a five-year term.

Contractual Obligations

The following tables set forth aggregate contractual obligations and commitments as of February 3, 2007.

(in thousands)		Payments Due by Period
																		More
						Less than 1				1-3				3-5				than 5
		Total				year				years				years				years
Contractual Obligations
Long-Term Debt		$	109,250			$	-0-			$	-0-			$	23,000			$	86,250
Interest on Long-Term Debt(1)			58,707				3,558				7,116				7,116				40,917
Capital Lease Obligations			617				196				320				84				17
Operating Lease Obligations			1,034,928				147,167				282,655				234,048				371,058
Purchase Obligations(2)			163,206				163,206				-0-				-0-				-0-
Other Long-Term Liabilities			1,554				-0-				401				388				765
Total Contractual Obligations		$	1,368,262			$	314,127			$	290,492			$	264,636			$	499,007

(in thousands)		Amount of Commitment Expiration Per Period
																		More
		Total Amounts				Less than 1				1-3				3-5				than 5
		Committed				year				years				years				years
Commercial Commitments
Letters of Credit		$	11,466			$	11,466			$	-0-			$	-0-			$	-0-
Total Commercial Commitments		$	11,466			$	11,466			$	-0-			$	-0-			$	-0-

Capital Expenditures

Capital expenditures were $73.3 million, $56.9 million and $39.5 million for Fiscal 2007, 2006 and 2005, respectively. The $16.4 million increase in Fiscal 2007 capital expenditures as compared to Fiscal 2006 resulted primarily from the increase in retail store capital expenditures due to 224 new store openings in Fiscal 2007. The $17.4 million increase in Fiscal 2006 capital expenditures as compared to Fiscal 2005 resulted primarily from the increase in retail store capital expenditures due to 193 new store openings in Fiscal 2006.

Total capital expenditures in Fiscal 2008 are expected to be approximately $89.1 million. These include expected retail capital expenditures of $80.3 million to open approximately 50-60 Journeys stores, 40 Journeys Kidz stores, 38 Shi by Journeys stores, ten Johnston & Murphy stores and factory stores, eight Underground Station stores, and 105 Hat World stores including 15 Lids Kids and to complete 142 major store renovations, including two conversions of Jarman stores to Underground Station stores. The planned amount of capital expenditures in Fiscal 2008 for wholesale operations and other purposes are expected to be approximately $8.8 million, including approximately $3.2 million for new systems to improve customer service and support the Company’s growth.

Future Capital Needs

The Company expects that cash on hand and cash provided by operations will be sufficient to fund all of its planned capital expenditures through Fiscal 2008, although the Company plans to borrow under its revolving credit facility from time to time to support seasonal working capital requirements. The approximately $4.5 million of costs associated with discontinued operations that are expected to be incurred during the next twelve months are also expected to be funded from cash on hand and borrowings under the revolving credit facility.

In a series of authorizations from Fiscal 1999-2003, the Company’s board of directors authorized the repurchase of up to 7.5 million shares. In June 2006, the board authorized an additional $20.0 million in stock repurchases. In August 2006, the board authorized an additional $30.0 million in stock repurchases. The Company repurchased 1,062,400 shares at a cost of $32.1 million during Fiscal 2007. In total, the Company has repurchased 8.2 million shares at a cost of $103.4 million from all authorizations as of February 3, 2007.

There were $11.5 million of letters of credit outstanding and $23.0 million revolver borrowings outstanding under the new Credit Facility at February 3, 2007. The gross availability under the Credit Facility was $182.3 million leaving net availability under the Credit Facility of $147.8 million. The Company is not required to comply with any financial covenants unless Adjusted Excess Availability (as defined in the Amended and Restated Credit Agreement) is less than 10% of the total commitments under the Credit Facility (currently $20.0 million). If and during such time as Adjusted Excess Availability is less than such amount, the Credit Facility requires the Company to meet a minimum fixed charge coverage ratio (EBITDA less capital expenditures less cash taxes divided by cash interest expense and scheduled payments of principal indebtedness) of 1.00 to 1.00. Because adjusted excess availability exceeded $20.0 million, the Company was not required to comply with this financial covenant at February 3, 2007. See Note 6 to the Consolidated Financial Statements.

The Company’s Credit Facility prohibits the payment of dividends and other restricted payments unless after such dividend or restricted payment availability under the Credit Facility exceeds $50.0 million or if

availability is between $30.0 million and $50.0 million, the fixed charge coverage must be greater than 1.0 to 1.0. The aggregate of annual dividend requirements on the Company’s Subordinated Serial Preferred Stock, $2.30 Series 1, $4.75 Series 3 and $4.75 Series 4, and on its $1.50 Subordinated Cumulative Preferred Stock is $256,000.

On December 1, 2006, the Company entered into the Amended and Restated Credit Agreement. The Credit Facility replaced the Company’s $105.0 million revolving credit facility.

The Credit Facility is a revolving credit facility in the aggregate principal amount of $200.0 million, with a $20.0 million swingline loan sublimit and a $70.0 million sublimit for the issuance of standby letters of credit, and has a five-year term. Any swingline loans and letters of credit will reduce the availability under the Credit Facility on a dollar-for-dollar basis. In addition, the Company has an option to increase the availability under the Credit Facility by up to $100.0 million (in increments no less than $25.0 million) subject to, among other things, the receipt of commitments for the increased amount. The aggregate amount of the loans made and letters of credit issued under the Credit Facility may at no time exceed the lesser of the facility amount ($200 million or, if increased at the Company’s option, up to $300 million) or the “Borrowing Base”, which generally is based on 85% of eligible inventory plus 85% of eligible accounts receivable less applicable reserves. For additional information on the Company’s Credit Facility, see Note 6 to the Consolidated Financial Statements.

Environmental and Other Contingencies

The Company is subject to certain loss contingencies related to environmental proceedings and other legal matters, including those disclosed in Note 13 to the Company’s Consolidated Financial Statements. The Company has made accruals for certain of these contingencies, including approximately $1.1 million reflected in Fiscal 2007, $0.8 million reflected in Fiscal 2006 and $0.9 million reflected in Fiscal 2005. The Company monitors these matters on an ongoing basis and, on a quarterly basis, management reviews the Company’s reserves and accruals in relation to each of them, adjusting provisions as management deems necessary in view of changes in available information. Changes in estimates of liability are reported in the periods when they occur. Consequently, management believes that its reserve in relation to each proceeding is a reasonable estimate of the probable loss connected to the proceeding, or in cases in which no reasonable estimate is possible, the minimum amount in the range of estimated losses, based upon its analysis of the facts and circumstances as of the close of the most recent fiscal quarter. However, because of uncertainties and risks inherent in litigation generally and in environmental proceedings in particular, there can be no assurance that future developments will not require additional reserves to be set aside, that some or all reserves may not be adequate or that the amounts of any such additional reserves or any such inadequacy will not have a material adverse effect upon the Company’s financial condition or results of operations.

Financial Market Risk

The following discusses the Company’s exposure to financial market risk related to changes in interest rates and foreign currency exchange rates.

Outstanding Debt of the Company – The Company’s outstanding long-term debt of $86.3 million 4 1/8% Convertible Subordinated Debentures due June 15, 2023 bears interest at a fixed rate. Accordingly, there would be no immediate impact on the Company’s interest expense due to fluctuations in market interest rates.

Cash and Cash Equivalents – The Company’s cash and cash equivalent balances are invested in financial instruments with original maturities of three months or less. The Company did not have significant exposure to changing interest rates on invested cash at February 3, 2007. As a result, the Company considers the interest rate market risk implicit in these investments at February 3, 2007 to be low.

Foreign Currency Exchange Rate Risk — Most purchases by the Company from foreign sources are denominated in U.S. dollars. To the extent that import transactions are denominated in other currencies, it is the Company’s practice to hedge its risks through the purchase of forward foreign exchange contracts. At February 3, 2007, the Company had $8.0 million of forward foreign exchange contracts for Euro. The Company’s policy is not to speculate in derivative instruments for profit on the exchange rate price fluctuation and it does not hold any derivative instruments for trading purposes. Derivative instruments used as hedges must be effective at reducing the risk associated with the exposure being hedged and must be designated as a hedge at the inception of the contract. The unrealized loss on contracts outstanding at February 3, 2007 was $4,000 based on current spot rates. As of February 3, 2007, a 10% adverse change in foreign currency exchange rates from market rates would decrease the fair value of the contracts by approximately $0.8 million.

Accounts Receivable – The Company’s accounts receivable balance at February 3, 2007 is concentrated in its two wholesale businesses, which sell primarily to department stores and independent retailers across the United States. One customer accounted for 19% of the Company’s trade accounts receivable balance and another customer accounted for 10% as of February 3, 2007. The Company monitors the credit quality of its customers and establishes an allowance for doubtful accounts based upon factors surrounding credit risk, historical trends and other information; however, credit risk is affected by conditions or occurrences within the economy and the retail industry, as well as company-specific information.

Summary – Based on the Company’s overall market interest rate and foreign currency rate exposure at February 3, 2007, the Company believes that the effect, if any, of reasonably possible near-term changes in interest rates or foreign currency exchange rates on the Company’s consolidated financial position, results of operations or cash flows for Fiscal 2008 would not be material.

New Accounting Principles

In March 2006, the Emerging Issues Task Force (“EITF”) reached a consensus on EITF Issue No. 06-3, “How Taxes Collected from Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement (that is, gross versus net presentation),” (“EITF No. 06-3”) which allows companies to adopt a policy of presenting taxes in the income statement on either a gross or net basis. Taxes within the scope of EITF No. 06-3 would include taxes that are imposed on a revenue transaction between a seller and a customer, for example, sales taxes, use taxes, value-added taxes and some types of excise taxes. EITF No. 06-3 is effective for interim and annual reporting periods beginning after December 15, 2006. EITF No. 06-3 will not impact the method for recording and reporting these sales taxes in the Company’s Consolidated Financial Statements as the Company’s policy is to exclude all such taxes from revenue.

In June 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation

No. 48, “Accounting for Uncertainty in Income Taxes — an interpretation of SFAS No. 109” (“FIN 48”). This Interpretation clarifies the accounting for uncertainty in income taxes recognized in the financial statements in accordance with SFAS No. 109, “Accounting for Income Taxes.” This Interpretation prescribes that a company should use a more-likely-than-not recognition threshold based on the technical merits of the tax position taken. Tax positions that meet the more-likely-than-not recognition threshold should be measured in order to determine the tax benefit to be recognized in the financial statements. FIN 48 is effective in fiscal years beginning after December 15, 2006. The Company is currently evaluating the impact that the adoption of FIN 48 will have on its results of operations and financial position.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS No. 157”). SFAS No. 157 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosures about fair value measurements. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007 (fiscal year 2009 for the Company), and interim periods within those fiscal years. The Company is currently evaluating the impact that the adoption of SFAS No. 157 will have, if any, on its results of operations and financial position.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities, including an amendment of FASB Statement No. 115” (“SFAS No. 159”). SFAS No. 159 allows companies to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007 (fiscal year 2009 for the Company). The Company is currently evaluating the impact that the adoption of SFAS No. 159 will have, if any, on its results of operations and financial position.

Inflation

The Company does not believe inflation has had a material impact on sales or operating results during periods covered in this discussion.

ITEM 7A, QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company incorporates by reference the information regarding market risk appearing under the heading “Financial Market Risk” in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations.

ITEM 8, FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO FINANCIAL STATEMENTS

		Page
Management’s Report on Internal Control over Financial Reporting			47
Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting			48
Report of Independent Registered Public Accounting Firm			49
Consolidated Balance Sheets, February 3, 2007 and January 28, 2006			50
Consolidated Statements of Earnings, each of the three fiscal years ended 2007, 2006 and 2005			52
Consolidated Statements of Cash Flows, each of the three fiscal years ended 2007, 2006 and 2005			53
Consolidated Statements of Shareholders’ Equity, each of the three fiscal years ended 2007, 2006 and 2005			54
Notes to Consolidated Financial Statements			55

Management’s Report on Internal Control over Financial Reporting

Management of the Company is responsible for establishing and maintaining effective internal control over financial reporting as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934. The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

Management assessed the effectiveness of the Company’s internal control over financial reporting as of February 3 2007. In making this assessment, management used the criteria set forth in Internal Control – Integrated Framework drafted by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, management believes that, as of February 3, 2007, the Company’s internal control over financial reporting is effective based on these criteria.

Management’s assessment of the effectiveness of internal control over financial reporting as of February 3, 2007, has been audited by Ernst & Young LLP, the independent registered public accounting firm who also audited the Company’s Consolidated Financial Statements. Ernst & Young’s attestation report on management’s assessment of the Company’s internal control over financial reporting appears on page 48 hereof.

Dated: March 30, 2007

Report of Independent Registered Public Accounting Firm
On Internal Control over Financial Reporting

The Board of Directors and Shareholders
Genesco Inc.

We have audited management’s assessment, included in the accompanying Management’s Report on Internal Control Over Financial Reporting, that Genesco Inc. maintained effective internal control over financial reporting as of February 3, 2007, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Genesco Inc.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, management’s assessment that Genesco Inc. maintained effective internal control over financial reporting as of February 3, 2007, is fairly stated, in all material respects, based on the COSO criteria. Also, in our opinion, Genesco Inc. maintained, in all material respects, effective internal control over financial reporting as of February 3, 2007, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Genesco Inc. as of February 3, 2007 and January 28, 2006, and the related consolidated statements of earnings, shareholders’ equity, and cash flows for each of the three years in the period ended February 3, 2007 and our report dated March 30, 2007 expressed an unqualified opinion thereon.

Nashville, Tennessee
March 30, 2007

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders
Genesco Inc.

We have audited the accompanying consolidated balance sheets of Genesco Inc. and Subsidiaries (the “Company”) as of February 3, 2007 and January 28, 2006, and the related consolidated statements of earnings, shareholders’ equity and cash flows for each of the three fiscal years in the period ended February 3, 2007. Our audits also included the financial statement schedule listed in Item 15. These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Genesco Inc. and Subsidiaries at February 3, 2007 and January 28, 2006, and the consolidated results of its operations and its cash flows for each of the three fiscal years in the period ended February 3, 2007, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects the information set forth therein.

As discussed in Notes 1, 10 and 12 to the consolidated financial statements, the Company changed its method of accounting for shared-based payments and its method of accounting for defined benefit pension and other postretirement benefit plans.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company’s internal control over financial reporting as of February 3, 2007, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 30, 2007 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Nashville, Tennessee
March 30, 2007

Genesco Inc.
and Subsidiaries

Consolidated Balance Sheets

In Thousands, except share amounts

		As of Fiscal Year End
		2007				2006
Assets
Current Assets
Cash and cash equivalents		$	16,739			$	60,451
Accounts receivable, net of allowances of $1,910 at February 3, 2007 and $1,439 at January 28, 2006			24,084				21,171
Inventories			261,037				230,648
Deferred income taxes			12,940				8,649
Prepaids and other current assets			20,266				20,269
Total current assets			335,066				341,188
Property and equipment:
Land			4,861				4,972
Buildings and building equipment			17,445				14,723
Computer hardware, software and equipment			72,404				60,289
Furniture and fixtures			82,542				67,036
Construction in progress			12,005				11,728
Improvements to leased property			222,493				187,083
Property and equipment, at cost			411,750				345,831
Accumulated depreciation			(189,416	)			(157,784	)
Property and equipment, net			222,334				188,047
Goodwill			107,651				96,235
Trademarks			51,361				47,671
Other intangibles, net of accumulated amortization of $6,096 at February 3, 2007 and $4,302 at January 28, 2006			2,816				4,284
Other noncurrent assets			10,145				8,693
Total Assets		$	729,373			$	686,118

Genesco Inc.
and Subsidiaries
Consolidated Balance Sheets
In Thousands, except share amounts

		As of Fiscal Year End
		2007				2006
Liabilities and Shareholders’ Equity
Current Liabilities
Accounts payable		$	65,083			$	73,929
Accrued employee compensation			21,954				26,047
Accrued other taxes			9,829				12,129
Accrued income taxes			7,845				12,886
Other accrued liabilities			25,570				27,178
Provision for discontinued operations			4,455				4,033
Total current liabilities			134,736				156,202
Long-term debt			109,250				106,250
Pension liability			14,306				23,222
Deferred rent and other long-term liabilities			64,245				50,013
Provision for discontinued operations			1,610				1,680
Total liabilities			324,147				337,367
Commitments and contingent liabilities
Shareholders’ Equity
Non-redeemable preferred stock			6,602				6,695
Common shareholders’ equity:
Common stock, $1 par value:
Authorized: 80,000,000 shares
Issued/Outstanding: February 3, 2007 – 23,230,458/22,741,994                            January 28, 2006 – 23,748,134/23,259,670			23,230				23,748
Additional paid-in capital			107,956				123,137
Retained earnings			306,622				239,232
Accumulated other comprehensive loss			(21,327	)			(26,204	)
Treasury shares, at cost			(17,857	)			(17,857	)
Total shareholders’ equity			405,226				348,751
Total Liabilities and Shareholders’ Equity		$	729,373			$	686,118

The accompanying Notes are an integral part of these Consolidated Financial Statements.

Genesco Inc.
and Subsidiaries

Consolidated Statements of Earnings

In Thousands, except per share amounts

		Fiscal Year
		2007				2006				2005
Net sales		$	1,460,478			$	1,283,876			$	1,112,681
Cost of sales			729,643				631,469				561,597
Selling and administrative expenses			608,685				537,327				461,799
Restructuring and other, net			1,105				2,253				1,221
Earnings from operations			121,045				112,827				88,064
Interest expense, net:
Interest expense			10,488				11,482				11,373
Interest income			(561	)			(1,125	)			(411	)
Total interest expense, net			9,927				10,357				10,962
Earnings before income taxes from continuing operations			111,118				102,470				77,102
Income tax expense			42,871				39,844				28,642
Earnings from continuing operations			68,247				62,626				48,460
(Provision for) earnings from discontinued operations, net			(601	)			60				(211	)
Net Earnings		$	67,646			$	62,686			$	48,249
Basic earnings (loss) per common share:
Continuing operations		$	3.00			$	2.73			$	2.19
Discontinued operations		$	(.02	)		$	.01			$	(.01	)
Net earnings		$	2.98			$	2.74			$	2.18
Diluted earnings (loss) per common share:
Continuing operations		$	2.61			$	2.38			$	1.92
Discontinued operations		$	(.02	)		$	.00			$	(.01	)
Net earnings		$	2.59			$	2.38			$	1.91

The accompanying Notes are an integral part of these Consolidated Financial Statements.

Genesco Inc.
and Subsidiaries

Consolidated Statements of Cash Flows

In Thousands

		Fiscal Year
		2007				2006				2005
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings		$	67,646			$	62,686			$	48,249
Tax benefit of stock options exercised			(2,405	)			3,850				3,264
Adjustments to reconcile net earnings to net cash provided by (used in) operating activities:
Depreciation			40,306				34,622				31,266
Deferred income taxes			(6,129	)			(5,065	)			6,061
Provision for losses on accounts receivable			274				29				3
Impairment of long-lived assets			1,921				376				1,017
Share-based compensation and restricted stock			7,413				972				271
(Earnings from) provision for discontinued operations			988				(98	)			339
Other			1,509				5,462				2,847
Effect on cash of changes in working capital and other assets and liabilities, net of acquisitions:
Accounts receivable			(3,080	)			(3,294	)			(4,900	)
Inventories			(28,357	)			(23,452	)			(5,192	)
Prepaids and other current assets			1,593				(2,220	)			(2,743	)
Accounts payable			(9,068	)			8,744				(6,902	)
Other accrued liabilities			(11,962	)			17,357				21,341
Other assets and liabilities			9,917				5,032				4,863
Net cash provided by operating activities			70,566				105,001				99,784
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures			(73,287	)			(56,946	)			(39,480	)
Acquisitions, net of cash acquired			(16,569	)			-0-				(167,676	)
Proceeds from sale of property and equipment			6				21				12
Net cash used in investing activities			(89,850	)			(56,925	)			(207,144	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of long-term debt			(21,600	)			(55,000	)			(25,000	)
Payments of capital leases			(4	)			(358	)			(480	)
Borrowings under revolving credit facility			262,000				1,000				117,000
Payments on revolving credit facility			(239,000	)			(1,000	)			(117,000	)
Long-term borrowings			-0-				-0-				100,000
Tax benefit of stock options exercised			2,405				-0-				-0-
Shares repurchased			(32,088	)			-0-				-0-
Change in overdraft balances			(1,477	)			(414	)			5,544
Dividends paid on non-redeemable preferred stock			(256	)			(273	)			(292	)
Exercise of stock options and issue shares — Employee Stock Purchase Plan			6,779				8,352				9,467
Financing costs paid			(1,187	)			-0-				(3,360	)
Net cash (used in) provided by financing activities			(24,428	)			(47,693	)			85,879
Net (Decrease) Increase in Cash and Cash Equivalents			(43,712	)			383				(21,481	)
Cash and cash equivalents at beginning of year			60,451				60,068				81,549
Cash and cash equivalents at end of year		$	16,739			$	60,451			$	60,068
Supplemental Cash Flow Information:
Net cash paid for:
Interest		$	9,730			$	10,368			$	9,854
Income taxes			51,053				32,510				23,796

The accompanying Notes are an integral part of these Consolidated Financial Statements.

Genesco Inc.
and Subsidiaries

Consolidated Statements of Shareholders’ Equity

In Thousands

		Total																Accumulated												Total
		Non-Redeemable								Additional								Other												Share-
		Preferred				Common				Paid-In				Retained				Comprehensive				Treasury				Comprehensive				holders’
		Stock				Stock				Capital				Earnings				Loss				Stock				Income				Equity
Balance January 31, 2004		$	7,580			$	22,212			$	96,612			$	128,862			$	(25,164	)		$	(17,857	)						$	212,245
Net earnings			-0-				-0-				-0-				48,249				-0-				-0-			$	48,249				48,249
Dividends paid on non-redeemable preferred stock			-0-				-0-				-0-				(292	)			-0-				-0-				-0-				(292	)
Exercise of options			-0-				667				8,448				-0-				-0-				-0-				-0-				9,115
Issue shares — Employee Stock Purchase Plan			-0-				25				327				-0-				-0-				-0-				-0-				352
Tax benefit of stock options exercised			-0-				-0-				3,264				-0-				-0-				-0-				-0-				3,264
Loss on foreign currency forward contracts (net of tax benefit of $0.6 million)			-0-				-0-				-0-				-0-				(905	)			-0-				(905	)			(905	)
Gain on interest rate swaps (net of tax of $0.1 million)			-0-				-0-				-0-				-0-				157				-0-				157				157
Foreign currency translation adjustment			-0-				-0-				-0-				-0-				101				-0-				101				101
Minimum pension liability adjustment (net of tax benefit of $0.6 million)			-0-				-0-				-0-				-0-				(491	)			-0-				(491	)			(491	)
Other			(106	)			22				354				-0-				-0-				-0-				-0-				270
Comprehensive income																										$	47,111
Balance January 29, 2005			7,474				22,926				109,005				176,819				(26,302	)			(17,857	)							272,065
Net earnings			-0-				-0-				-0-				62,686				-0-				-0-			$	62,686				62,686
Dividends paid on non-redeemable preferred stock			-0-				-0-				-0-				(273	)			-0-				-0-				-0-				(273	)
Exercise of options			-0-				547				8,297				-0-				-0-				-0-				-0-				8,844
Employee restricted stock			-0-				229				400				-0-				-0-				-0-				-0-				629
Issue shares — Employee Stock Purchase Plan			-0-				25				483				-0-				-0-				-0-				-0-				508
Tax benefit of stock options exercised			-0-				-0-				3,850				-0-				-0-				-0-				-0-				3,850
Conversion of Series 4 preferred stock			(723	)			11				712				-0-				-0-				-0-				-0-				-0-
Loss on foreign currency forward contracts (net of tax benefit of $0.7 million)			-0-				-0-				-0-				-0-				(1,047	)			-0-				(1,047	)			(1,047	)
Gain on interest rate swaps (net of tax of $0.1 million)			-0-				-0-				-0-				-0-				61				-0-				61				61
Minimum pension liability adjustment (net of tax of $0.7 million)			-0-				-0-				-0-				-0-				1,084				-0-				1,084				1,084
Other			(56	)			10				390				-0-				-0-				-0-				-0-				344
Comprehensive income																										$	62,784
Balance January 28, 2006			6,695				23,748				123,137				239,232				(26,204	)			(17,857	)							348,751
Net earnings			-0-				-0-				-0-				67,646				-0-				-0-			$	67,646				67,646
Dividends paid on non-redeemable preferred stock			-0-				-0-				-0-				(256	)			-0-				-0-				-0-				(256	)
Exercise of stock options			-0-				357				6,101				-0-				-0-				-0-				-0-				6,458
Issue shares — Employee Stock Purchase Plan			-0-				10				311				-0-				-0-				-0-				-0-				321
Shares repurchased			-0-				(1,062	)			(31,026	)			-0-				-0-				-0-				-0-				(32,088	)
Employee and non-employee restricted stock			-0-				182				3,164				-0-				-0-				-0-				-0-				3,346
Share-based compensation			-0-				-0-				4,067				-0-				-0-				-0-				-0-				4,067
Tax benefit of stock options exercised			-0-				-0-				2,405				-0-				-0-				-0-				-0-				2,405
Gain on foreign currency forward contracts (net of tax of $0.6 million)			-0-				-0-				-0-				-0-				848				-0-				848				848
Loss on interest rate swaps (net of tax benefit of $0.2 million)			-0-				-0-				-0-				-0-				(218	)			-0-				(218	)			(218	)
Pension liability adjustment (net of tax of $3.2 million)			-0-				-0-				-0-				-0-				5,094				-0-				5,094				5,094
Cumulative adjustment to adopt SFAS No. 158 (net of tax benefit of $0.5 million)			-0-				-0-				-0-				-0-				(802	)			-0-				-0-				(802	)
Foreign currency translation adjustment			-0-				-0-				-0-				-0-				(45	)			-0-				(45	)			(45	)
Other			(93	)			(5	)			(203	)			-0-				-0-				-0-				-0-				(301	)
Comprehensive income																										$	73,325
Balance February 3, 2007		$	6,602			$	23,230			$	107,956			$	306,622			$	(21,327	)		$	(17,857	)						$	405,226